Henry C. Boler and Sherry M. Boler - Page 16




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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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