- 8 -
losses described in the police reports. There is no evidence in
this record which shows a theft loss was sustained during 1999.
Section 166(a)(1) authorizes a deduction for a business bad
debt that becomes worthless during the year. To be entitled to
the deduction, petitioners must prove (1) that a bona fide debt
was created obligating the debtor to pay a fixed or determinable
sum of money, (2) that the debt was created or acquired in
proximate relation to a trade or business, and (3) that the debt
became worthless in the year claimed. United States v. Generes,
405 U.S. 93, 96 (1972); Calumet Indus., Inc. v. Commissioner, 95
T.C. 257, 284 (1990). A debt is bona fide if it arose “from a
debtor-creditor relationship based upon a valid and enforceable
obligation to pay a fixed or determinable sum of money.” Sec.
1.166-1(c), Income Tax Regs.
The debts petitioners claimed are for unpaid fees for
petitioner’s services. Petitioners used the cash method for
reporting income and deductions; therefore, fees for services
that remain unpaid have not been included in income. Such debts
do not constitute “bad debts” within the meaning of section 166
for which a deduction for worthlessness may be claimed. See
Gertz v. Commissioner, 64 T.C. 598, 600 (1975).
With respect to any of the claimed “bad debts” that are not
attributable to unpaid claims for services, petitioners have not
shown that there were debt obligations or that they became
Page: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: May 25, 2011