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W. R.R. v. Commissioner, 32 T.C. 43, 56 (1959), affd. 279 F.2d
368 (10th Cir. 1960).
While a taxpayer need not be an “incorrigible optimist”, a
taxpayer may not substantiate the worthlessness of a debt based
on his or her own pessimism. Petitioner must provide sufficient
evidence to meet his burden to show that the debt was worthless
and not merely surmise that collection would be futile. See
United States v. S.S. White Dental Manufacturing Co., 274 U.S.
398 (1927); Fox v. Commissioner, 50 T.C. 813 (1968) (a taxpayer’s
subjective, good faith opinion that the debt is uncollectible,
standing alone, is not sufficient to render it worthless), affd.
per curiam 25 AFTR 2d 70-891, 70-1 USTC par. 9373 (9th Cir.
1970). Evans’ future earning potential was indicative of his
ability to repay at least a portion of the debt. Nor can
petitioner rely on his good nature in not wanting to destroy
Evans financially to prove that the debt was worthless. We find,
therefore, that petitioner has not shown that steps to enforce
collection in 1995 would have been futile. See Perry v.
Commissioner, supra at 974; Newman v. Commissioner, supra.
Conclusion
We hold that the debt did not become “wholly worthless”
within the meaning of section 166(a)(1) in 1995. Consequently,
petitioners are not entitled to a bad debt deduction, and we
sustain respondent’s disallowance of the claimed bad debt
deduction. In view of our holding that petitioners failed to
prove worthlessness in 1995, we need not discuss whether the debt
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