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Weinstein told petitioner she was insolvent and that she could
not repay the loan.
In January of each year, Ms. Weinstein sought additional
funding in order to maintain the financial condition of Indian
Falls to ensure it could open in April. In January 1994,
however, Ms. Weinstein was unable to obtain the additional
funding necessary to open in the spring. Thus, Indian Falls
ceased doing business in January 1994. However, in July 1994 Ms.
Weinstein obtained sufficient funding to begin a new business
operating a swim and tennis club, which was essentially the same
business as Indian Falls, operating at a different site. This
business was operating as of the end of 1994. At some point
during 1994, petitioner told Ms. Weinstein that if she did not
pay him the $44,000 she owed, he might sue her to recover.
On Schedule E, Supplemental Income and Loss, of the 1994
return, petitioner reported rental income of $143,059, a portion
of which was received from Ms. Weinstein. Also, on Schedule E,
petitioner claimed a bad debt deduction of $44,000 by listing
that amount as an item of expense with respect to the rental
income.10
10 Petitioner’s accountant, Mr. Finder, believed it was
correct to claim the bad debt deduction on the schedule reporting
the rental income from Ms. Weinstein’s business, since the bad
debt, in his view, was directly related to rental operations.
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