Jerry S. Payne - Page 32

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          loans.  Although petitioner testified that there was supporting             
          documentation, he did not produce it.                                       
               Here, again, petitioner has failed to provide the required             
          substantiation in support of his deductions.  Moreover, he has              
          not shown that he made any effort to collect even a portion of              
          the amount allegedly owed to him by Payne & Potter, Inc.  The               
          mere fact of the debtor’s insolvency does not prove that                    
          petitioner, as creditor, had no reasonable prospect of recovery,            
          which is necessary to support a bad debt deduction.  See                    
          Intergraph Corp. & Subs. v. Commissioner, 106 T.C. 312, 323                 
          (1996), affd. per curiam without published opinion 121 F.3d 723             
          (11th Cir. 1997).                                                           
               For the foregoing reasons, we sustain respondent’s                     
          determination disallowing petitioner’s bad debt deductions.                 
          V.  Section 6662(a) Penalty                                                 
               Section 6662(a) provides for a penalty equal to 20 percent             
          of the underpayment in tax attributable to, among other things,             
          negligence or disregard of rules or regulations (without                    
          distinction, negligence).  See sec. 6662(b)(1).  The penalty for            
          negligence will not apply to an underpayment in tax to the extent           
          that the taxpayer can show both reasonable cause and that the               
          taxpayer acted in good faith.  See sec. 6664(c)(1).  Negligence             
          “includes any failure by the taxpayer * * * to substantiate items           
          properly.”  Sec. 1.6662-3(b)(1), Income Tax Regs.  Because                  

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