-11-
year. Hotel Cont’l., Inc. v. Commissioner, T.C. Memo. 1995-364,
affd. without published opinion 113 F.3d 1241 (9th Cir. 1997).
Worthlessness is an objective determination, but is generally
fixed by identifiable events that form the basis of reasonable
grounds for abandoning any hope of recovery. Am. Offshore, Inc.
v. Commissioner, 97 T.C. 579, 594 (1991); Dustin v. Commissioner,
53 T.C. 491, 501 (1969), affd. 467 F.2d 47 (9th Cir. 1972); Hotel
Cont’l., Inc. v. Commissioner, supra. Debts are wholly worthless
when the taxpayer had no reasonable expectation of repayment.
Crown v. Commissioner, 77 T.C. 582, 598 (1981).
Petitioner is not entitled to a bad debt deduction in 1998
because petitioner has failed to show the debt had value at the
beginning of 1998. In fact, the evidence of petitioner’s
collection efforts in earlier years tends to show that any value
the debt had was lost before 1998. For example, Mr. Hauser died
in 1994. Mr. Hauser was the sole or majority shareholder of
Brooks Foods. There is evidence that secured creditors or other
parties who became shareholders of Brooks Foods before Mr.
Hauser’s death had control over all the stock shortly after Mr.
Hauser died. In addition, correspondence from the life insurance
company that insured the life of Mr. Hauser in 1994 indicated
petitioner was not entitled to any life insurance proceeds.
Petitioner filed a lawsuit against Brooks Foods and Ms. Hauser
attempting to recover the debt in 1995, which was ultimately
fruitless. This evidence supports the conclusion that the debt
had no value by the beginning of 1998.
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