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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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