- 6 -
tax return interest income arising from the sale of a business
plan or intellectual property. Neither petitioners nor Navis
reported on any Federal income tax return interest income arising
from the sale of PowerAgent or WorkWorld.
Petitioners claimed a bad debt deduction on Schedule C of
their 1997 Federal income tax return. On Schedule C, Mr. Sundby
indicated that his principal business was that of a lender,
reporting income on the cash basis. Mr. Sundby also indicated
that he did not “materially participate” in the operation of this
business.
Discussion
Petitioners bear the burden of proving that they are
entitled to their claimed bad debt deduction. Rule 142(a);4
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). To avail
themselves of a bad debt deduction pursuant to section 166,5
4Sec. 7491 does not apply in the instant case to shift the
burden of proof to respondent because petitioners neither alleged
that sec. 7491 was applicable nor established that they fully
complied with the requirements of sec. 7491(a)(2).
5Sec. 166. BAD DEBTS.
(a) General Rule.--
(1) Wholly worthless debts.-–There shall be
allowed as a deduction any debt which becomes worthless
within the taxable year.
(2) Partially worthless debts.-–When satisfied
that a debt is recoverable only in part, the Secretary
may allow such debt, in an amount not in excess of the
(continued...)
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 Next
Last modified: May 25, 2011