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other circumstances that would persuade us to characterize the
advance as a business bad debt. Thus, petitioner’s claimed bad
debt deduction would be characterized as a nonbusiness bad debt
deduction. To the extent that the advance of funds was a loan to
ITG, for the same reasons discussed above as to section 165 it
would appear that the debt became worthless when the corporation
became defunct. Thus, petitioners would not be entitled to a bad
debt deduction in 1997.
To the extent that the advance may have been a loan to Mr.
Jasbon, petitioner has failed to present sufficient evidence to
establish that he is entitled to a deduction for a nonbusiness
bad debt. There is nothing in this record that establishes that
the debt became worthless in 1997. In order to be entitled to a
bad debt deduction, petitioner must prove that the debt had value
at the beginning of 1997 and became worthless during that year.
See Milenbach v. Commissioner, 106 T.C. 184, 204 (1996), affd. in
part and revd. in part 318 F.3d 924 (9th Cir. 2003).
In conclusion, there is no scenario that would permit
petitioners to claim a loss or a bad debt deduction in 1997.
III. Bad Debt Deduction as Secured Creditor
Section 166(a) generally allows a deduction for any bona
fide debt that becomes worthless during the taxable year. To
establish entitlement to a bad debt deduction, a taxpayer must
prove that a bona fide debt existed and that the debt became
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