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wished to deduct the bad debt in 1998, petitioner should have
taken measures to preserve the requisite records, even though the
sales to which the alleged debt related were in 1994.
Accordingly, we find that petitioner has not introduced
evidence to substantiate the deduction, and therefore, petitioner
may not deduct any amount with respect to the bad debt allegedly
owed him by Brooks Foods.6
III. Year of Worthlessness
We next address petitioner’s argument that it is irrelevant
which year petitioner claimed the deduction because it would have
created a net operating loss that petitioner could have carried
forward or backward under section 172. See sec. 172(b)(1)(A).
Petitioner’s position is contrary to established law.
The bad debt deduction is available only for those debts
that become worthless during the taxable year. Sec. 166(a)(1).
Moreover, petitioner must prove that the debt had value at the
beginning of the year and that it became worthless during that
6Petitioner also failed to prove that the debt was bona
fide. See sec. 166(a)(1). Petitioner did not show that a valid,
enforceable obligation was created to pay a fixed or determinable
sum of money. See sec. 1.166-1(c), Income Tax Regs. In
addition, petitioner did not show whether interest was charged,
whether Egan Oil recorded the amount allegedly owed as a debt on
its books, whether any payments were made on the debt, or whether
Egan Oil had any collateral other than the note or the alleged
life insurance policy. We have no proof of these facts other
than petitioner’s own testimony that a petroleum purchase
transaction took place between Brooks Foods and Egan Oil. The
notes Mr. Hauser made to guarantee payment, simply a formal
indication that a debt was owed, are not sufficient to establish
that a bona fide debt existed. See Sundby v. Commissioner, T.C.
Memo. 2003-204; Hotel Cont’l., Inc. v. Commissioner, T.C. Memo.
1995-364, affd. without published opinion 113 F.3d 1241 (9th Cir.
1997).
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