William A. Egan - Page 12

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               The only evidence linking the debt to 1998 is Ms. Hauser’s             
          discharge in bankruptcy for that year.  We find no connection               
          between Ms. Hauser’s bankruptcy and the claimed bad debt.  Ms.              
          Hauser was not the debtor, and she was not connected to the                 
          business.  Moreover, petitioner has not shown how Ms. Hauser                
          could otherwise be liable for Brooks Foods’ debts.  Accordingly,            
          we find her bankruptcy discharge is of no consequence to the                
          worthlessness of the debt.  In fact, the 1995 letter to                     
          petitioner from Ms. Hauser’s attorneys indicated to petitioner              
          that he would not likely collect from Ms. Hauser.  Petitioner did           
          not introduce any evidence of actions petitioner took with                  
          respect to the debt from 1995 to 1998.  Unfortunately, it appears           
          that Mr. Hauser duped petitioner the same as Ms. Hauser’s                   
          attorneys stated that Mr. Hauser had duped others.                          
               We are convinced that any debt of Brooks Foods to Egan Oil             
          had no value before 1998.  Petitioner may not, therefore, deduct            
          the debt owed by Brooks Foods in 1998 because petitioner has not            
          substantiated the amount of the deduction nor shown that it                 
          became worthless in 1998.                                                   
          IV.  Accuracy-Related Penalty                                               
               We turn now to respondent’s determination in the deficiency            
          notice that petitioner is liable for the accuracy-related penalty           
          under section 6662.  Respondent has the burden of production                
          under section 7491(c) and must come forward with sufficient                 
          evidence that it is appropriate to impose the penalty.  See                 
          Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001).                       





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