ABC Beverage Corp., f.k.a. Beverage America, Inc. - Page 14

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          decide whether a creditor may deduct a bad debt where the                   
          creditor’s actions contributed to the debtor’s default.                     
               We proceed by explaining the general legal principles                  
          surrounding partial bad debt deductions under section 166(a)(2).            
          We then analyze and distinguish a Court of Federal Claims case              
          concerning a similar issue.                                                 
          General Rules Under Section 166                                             
               Whether a debt has become partially worthless is a facts and           
          circumstances determination.  Sec. 166(a)(2); sec. 1.166-2(a),              
          Income Tax Regs.  A taxpayer can establish worthlessness by                 
          showing that a debt has neither current nor potential value.                
          Dustin v. Commissioner, 53 T.C. 491, 501 (1969), affd. 467 F.2d             
          47 (9th Cir. 1972).                                                         
               Though the Commissioner’s determination is generally                   
          presumed correct, the Commissioner must reasonably exercise his             
          discretion.  Brimberry v. Commissioner, 588 F.2d 975, 977 (5th              
          Cir. 1979), affg. T.C. Memo. 1976-209; Portland Mfg. Co. v.                 
          Commissioner, 56 T.C. 58, 72 (1971), affd. on other grounds 35              
          AFTR 2d 75-1439, 75-1 USTC par. 9449 (9th Cir. 1975).  The                  
          Commissioner’s exercise of discretion regarding a bad debt should           
          not be reversed unless it is plainly arbitrary and unreasonable.            
          Ark. Best Corp. & Subs. v. Commissioner, 800 F.2d 215, 221 (8th             
          Cir. 1986), affg. in part and revg. in part 83 T.C. 640 (1984),             
          affd. on other grounds 485 U.S. 212 (1988); Brimberry v.                    






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