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left AIM in 1996 that Scott considered the $14,900 to be
compensation. These facts show that the loan became worthless in
1996.
Respondent points out that petitioner did not sue Scott.
However, to prove that a debt is worthless, a taxpayer is not
required to sue to obtain repayment if, as here, the
circumstances indicate that a lawsuit to enforce payment would
probably not result in satisfaction of a judgment. Exxon Corp.
v. United States, 785 F.2d 277, 279 (Fed. Cir. 1986); sec. 1.166-
2(a) and (b), Income Tax Regs. We conclude that AIM may deduct
the $14,900 as a bad debt in 1996.
C. Whether AIM Had Cost of Goods Sold of $103,415 in 1994
Petitioners contend that AIM’s cost of goods sold for 1994
was $103,415. Respondent contends that it was $85,883. The
difference of $17,532 relates to labor and material expenses AIM
incurred for work it did for Morton International in 1994 and
1995. AIM paid those expenses in December 1994 and, in January
1995, completed the job and billed Morton International.
Deductions under the accrual method of accounting are
allowable for the taxable year in which all events have occurred
that establish the fact of the liability, the amount of the
liability can be determined with reasonable accuracy, and
economic performance has occurred with respect to the liability.
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