ABC Beverage Corp., f.k.a. Beverage America, Inc. - Page 15

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          Commissioner, supra; Findley v. Commissioner, 25 T.C. 311, 318              
          (1955), affd. 236 F.2d 959 (3rd Cir. 1956).                                 
               Whether a bad debt deduction is proper must be analyzed                
          according to "reasonableness, commonsense and economic reality."            
          Scovill Mfg. Co. v. Fitzpatrick, 215 F.2d 567, 570 (2d Cir. 1954)           
          (quoting Belser v. Commissioner, 174 F.2d 386, 390 (4th Cir.                
          1949), affg. 10 T.C. 1031 (1948)).  In addition, the                        
          Commissioner’s discretion is not absolute, and the Commissioner             
          cannot ignore the sound business judgment of a corporation’s                
          officers.  Portland Mfg. v. Commissioner, supra at 73 (upholding            
          a partially worthless debt deduction where corporate officers               
          concluded that the debtor had no value as a going concern, and              
          corporation could recover only the value of the debtor’s assets).           
               All pertinent evidence is considered in determining                    
          worthlessness.  See sec. 1.166-2, Income Tax Regs.  The evidence            
          to be considered includes the value of the collateral securing              
          the debt and the financial condition of the debtor.  Sec. 1.166-            
          2(a), Income Tax Regs.  Legal action to enforce payment is not              
          required where the surrounding circumstances indicate that a debt           
          is worthless and legal action would likely not result in                    
          satisfactory relief.  Sec. 1.166-2(b), Income Tax Regs.  A debt             
          has been found not to be worthless where the debtor is a going              
          concern with the potential to earn a future profit.  Liggett’s              

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