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petitioners must prove (1) a bona fide debt existed between them
and Search2000, and (2) the debt became worthless in 1997, the
year in which they claimed the deduction. See also Dixie Dairies
v. Commissioner, 74 T.C. 476, 493-494 (1980); Kim v.
Commissioner, T.C. Memo. 1995-598; Hotel Continental, Inc. v.
5(...continued)
part charged off within the taxable year, as a
deduction.
(b) Amount of Deduction.-–For purposes of subsection
(a), the basis for determining the amount of the deduction
for any bad debt shall be the adjusted basis provided in
section 1011 for determining the loss from the sale or other
disposition of property.
(d) Nonbusiness Debts.--
(1) General rule.-–In the case of a taxpayer
other than a corporation–-
(A) subsection (a) shall not apply to any
nonbusiness debt; and
(B) where any nonbusiness debt becomes
worthless within the taxable year, the loss
resulting therefrom shall be considered a loss
from the sale or exchange, during the taxable
year, of a capital asset held for not more than 1
year.
(2) Nonbusiness debt defined.-–For purposes of
paragraph (1), the term “nonbusiness debt” means a debt
other than–
(A) a debt created or acquired (as the case
may be) in connection with a trade or business of
the taxpayer; or
(B) a debt the loss from the worthlessness
of which is incurred in the taxpayer’s trade or
business.
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Last modified: May 25, 2011