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that proves worthlessness. Coborn v. Commissioner, T.C. Memo.
1998-377 (citing Am. Offshore, Inc. v. Commissioner, 97 T.C.
579, 593-594 (1991)), affd. 205 F.3d 1345 (8th Cir. 1999).
Petitioner must establish sufficient objective facts from which
worthlessness could be determined. Fox v. Commissioner, 50 T.C.
813, 822-823 (1968), affd. per curiam 25 AFTR 2d 70-891, 70-1
USTC par. 9373 (9th Cir. 1970). A debt is considered worthless
when there are reasonable grounds for abandoning hope that the
debt will be repaid. The decision must be made in the exercise
of sound business judgment. Andrew v. Commissioner, 54 T.C. 239,
248 (1970). Legal action is not required to enforce payment
where the surrounding facts and circumstances indicate that, in
all probability, the action would not result in an enforceable
judgment in favor of the lender. Sec. 1.166-2(b), Income Tax
Regs. The determination by the trier of fact that a debt has
become worthless requires an examination of all the facts and
circumstances. Boehm v. Commissioner, 326 U.S. 287, 293 (1945);
Dallmeyer v. Commissioner, 14 T.C. 1282, 1291 (1950).
Petitioner contends he had two grounds for concluding the
Atascadero loan was worthless in 1995. First, he argues that
Stephanie’s financial condition in 1995 had deteriorated to the
point where he would have been unable to recover any of the
outstanding balance from her. Second, petitioner contends that
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