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the Oakland home. Her only option was to cease making payments
on the Great Western loan. Great Western would then have
foreclosed on its first deed of trust, which would have resulted
in petitioner’s second deed of trust being forfeited to the
senior lienholder. Nevertheless, petitioner inquired into the
value of Stephanie’s home in Oakland with the view to convincing
her to sell the home and use the proceeds to satisfy her debt to
petitioner. However, Stephanie’s financial condition had
deteriorated to the point where she was contemplating filing for
bankruptcy. A bankruptcy attorney advised petitioner that the
gain from any sale of the Oakland home would be exempt from
creditors. After his discussions with Stephanie, in which she
informed him that she had “nothing”, petitioner concluded that
the only asset out of which she could satisfy her debt was the
Atascadero property.
We are unmoved by respondent’s argument that Stephanie’s
income in 1996 would have enabled her to make payments to
petitioner. A taxpayer is not required to “‘wait until some turn
of the wheel of fortune may bring the debtor into affluence.’”
Andrew v. Commissioner, 54 T.C. 239, 249 (1970) (quoting
Minneapolis, St. Paul & Sault Ste. Marie R.R. Co. v. United
States, 164 Ct. Cl. 226, 241 (1964)). Our concern is whether
petitioner exercised sound business judgment when he concluded
the debt was worthless in 1995. Petitioner has established that
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