Dale H. and Edith Littlefield Sundby - Page 9

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          transaction because petitioners controlled both corporations.6              
          See Baldwin v. Commissioner, T.C. Memo. 1993-433; see also Ludwig           
          Baumann & Co. v. Commissioner, T.C. Memo. 1961-271, affd. 312               
          F.2d 557 (2d Cir. 1963).                                                    
               In the instant case, petitioners have failed to prove their            
          entitlement to the bad debt deduction claimed on their return.              
          Petitioners have failed to prove that Search2000 and Navis were             
          engaged in an arm’s-length transaction or that Navis and                    
          Search2000 ever entered into a valid debtor-creditor                        
          relationship.  See Rule 142(a).  While the record contains a                
          promissory note and the minutes of the July 21, 1995, Search2000            
          board of directors meeting authorizing Search2000 to purchase the           
          alleged WorkWorld and PowerAgent business plans and intellectual            
          property from Navis, the record contains no evidence (other than            
          the promissory note) that the alleged transaction actually took             
          place.  Moreover, there is no evidence that the note was                    
          acquired, transferred, or otherwise conveyed by Navis to                    
          petitioners, who are claiming the bad debt deduction on Schedule            
          C of their personal return.                                                 


               6Mr. Sundby was the president of both Search2000 and Navis             
          in 1995.  The minutes of the July 21, 1995, Search2000 board of             
          directors meeting indicate that petitioners and Mr. J. Tim Konold           
          were on the Search2000 board of directors.  Moreover, the                   
          promissory note indicates that Mr. Sundby was the chairman and              
          CEO (chief executive officer) of Search2000.  The California                
          Franchise Tax Board’s records list Mr. Sundby as the only officer           
          or director of both Search2000 (later PowerAgent, Inc.) and                 
          Navis.                                                                      




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