- 11 -
claimed loans made to Border and (2) a $180,000 stock loss from a
worthless investment in Border. On Form 1040X, petitioner
requested section 1244 treatment of the stock loss. Petitioner
carried the remaining claimed 1997 business bad debt loss back to
1994-96 and forward into the years at issue, 1998-2000.
On December 26, 2002, respondent mailed to petitioner a
notice of deficiency for 1998-2000. Respondent did not challenge
the total amount of the transfers of money as claimed on
petitioner’s returns. Respondent did however, disallow
petitioner’s ordinary loss treatment of the alleged business bad
debt and instead allowed petitioner the $218,489 as a capital
loss. Respondent also allowed the $180,000 stock loss for 1997
for the capital investments petitioner and Mr. Tedford had made
prior to 1994.
On March 25, 2003, petitioner filed a petition for
redetermination with the Court.
Discussion
The issue is whether the monetary transfers that petitioner
and her deceased husband made to Border are capital contributions
or bona fide debts under section 166.
Under section 166(a) a taxpayer may deduct bona fide debts
owed to her that become worthless within the taxable year. Bona
fide debts are debts which arise from debtor-creditor
relationships that are based upon valid and enforceable
Page: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 NextLast modified: May 25, 2011