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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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