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affd. 205 F.2d 353 (2d Cir. 1953). We also consider the
existence of security or collateral, the demand for repayment,
records that may reflect the transaction as a loan, and the
borrower’s solvency at the time of the loan. Id.
Petitioner contends that he should be allowed to claim a
nonbusiness bad debt deduction pursuant to section 166 for the
loan to Mr. Garner.3 We disagree.
Petitioner failed to establish that the loan to Mr. Garner
was a bona fide debt, or in the alternative, that such debt
became worthless in 1996. At trial, petitioner testified that
the loan was made to assist Mr. Garner in his personal financial
situation. The record includes a $20,000 promissory note dated
September 8, 1987, signed by Mr. Garner. The note, bearing
interest at 8 percent, was due October 1, 1987. Petitioners
never received any interest or payment of principal from Mr.
Garner. Further, petitioners failed to take legal action to
collect the purported debt from Mr. Garner during his lifetime or
from his estate. Lencke v. Commissioner, T.C. Memo. 1997-284.
Mr. Garner passed away in 1994, 7 years after the initial loan
was purportedly created. Although death of the debtor may
indicate that a debt is worthless, petitioner has not shown that
collection efforts against Mr. Garner’s estate would have been
3 Although petitioner reported a $3,000 long-term capital
loss, pursuant to sec. 166 a nonbusiness bad debt would yield a
loss of $3,000 per year as a short-term capital loss.
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