-242-
worthless”, see sec. 1.166-5(a)(2), Income Tax Regs., the courts
have not interpreted section 166 so strictly as to include the
recovery of nominal amounts. For example, in Buchanan v. United
States, 87 F.3d 197, 200 (7th Cir. 1996), the Court of Appeals
for the Seventh Circuit observed that “the recovery of a tiny
amount of a debt, even if fully anticipated rather than
completely unpredictable, will not defeat a finding of
worthlessness”. Instead, a debt is worthless if on a particular
date the taxpayer has “no reasonable prospect” of recovering “a
significant, though in the sense merely of nontrivial, fraction”
of the debt amount.169 Id. The Court of Appeals reasoned that
“Recovery of a trivial fraction of the debt would be unlikely to
cover the costs of collection”. Id.
Petitioner, however, points to Los Angeles Shipbuilding &
Drydock Corp. v. United States, 289 F.2d 222 (9th Cir. 1961). In
that case, the Court of Appeals for the Ninth Circuit held that
“Nominal value of the property owned by * * * [the debtor]
compared to the size of its debt * * * does not determine
worthlessness, but rather worthlessness is determined by
comparing the value of the property to a zero figure.” Id. at
228. Reading Buchanan and Los Angeles Shipbuilding & Drydock
together, petitioner argues: “To be considered worthless,
169 See Rev. Rul. 71-577, 1971-2 C.B. 129 (recovering one or
two cents on the dollar represents a trivial amount).
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