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petition with this Court contesting the disallowance of the
$491,054 they claimed as a business bad debt.
OPINION
Respondent’s determination in the Notice is presumed
correct, and petitioners bear the burden of proving it is
incorrect.3 Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933).
A taxpayer may deduct a debt that becomes wholly worthless
during the taxable year.4 Sec. 166(a)(1). Deductions are a
matter of legislative grace, and the taxpayer has the burden of
proving that he or she is entitled to any claimed deductions.
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Thus,
petitioners have the burden of proving that the $491,054 debt
petitioner asserts Evans owed him became wholly worthless in
1995, the year in which they claimed it as a deduction.5 See
Rule 142(a); Putnam v. Commissioner, 352 U.S. 82, 85 (1956);
Intergraph Corp. & Subs. v. Commissioner, 106 T.C. 312 (1996),
affd. without published opinion 121 F.3d 723 (11th Cir. 1997);
Crown v. Commissioner, 77 T.C. 582, 598 (1981).
3Sec. 7491(a) shifts the burden of proof under certain
circumstances to respondent and applies to examinations commenced
after July 22, 1998. Because the examination in this case
commenced on Jan. 6, 1998, sec. 7491(a) does not apply.
4The debt must also be a bona fide debt in order to be
deductible; that is, a debt that arises from a debtor-creditor
relationship, on the basis of a legally valid and enforceable
obligation to pay a fixed sum of money. Sec. 1.166-1(c), Income
Tax Regs.
5Petitioners made no claim for partial worthlessness. Sec.
166(a)(2).
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