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insufficient). We therefore find that petitioners have failed to
meet their burden of proving the loan became wholly worthless in
1995.
Failure To Take Reasonable Steps To Collect
Next we address whether petitioner took reasonable steps to
enforce repayment of the debt. In the absence of reasonable
steps to enforce its collection, a debt generally is not regarded
as wholly worthless unless there is proof that steps to collect
it would be futile. Perry v. Commissioner, 22 T.C. 968, 974
(1954); see also Newman v. Commissioner, T.C. Memo. 1982-61
(taxpayer must have exhausted all usual and reasonable means of
collecting a debt before worthlessness can be found).
There is no evidence that petitioner took any affirmative
steps, other than the Lawsuit, to enforce collection of amounts
owed him by Evans. For instance, petitioner testified that he
would have made a “sweetheart deal” for Evans to repay the loans
over 20 or 30 years, or “whatever time it took”. Yet the record
is devoid of evidence that petitioner ever made Evans that offer.
The only obvious step petitioner took was the Lawsuit. By
petitioner’s own admission, however, he commenced the Lawsuit
primarily to subject Evans to the noncompete agreement, not to
enforce collection of the debt. Moreover, petitioner instituted
the Lawsuit in 1996, not 1995, the year in which petitioner took
the bad debt deduction. A bad debt is deductible only in the
year it becomes worthless and, hence, petitioner’s suit in 1996
does not render the debt worthless in 1995. Denver & Rio Grande
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