William King Alt and Barbara G. Alt - Page 6

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          loss from the sale or exchange of a capital asset held for not              
          more than one year.  Sec. 1.166-5(a)(2), Income Tax Regs.  To               
          qualify for a worthless debt deduction, the taxpayer must show              
          that a debtor-creditor relationship was intended between the                
          taxpayer and the debtor, that a genuine debt in fact existed, and           
          that the debt became worthless within the taxable year.  Andrew             
          v. Commissioner, 54 T.C. 239, 244-245 (1970); sec. 1.166-1(c),              
          Income Tax Regs.  Petitioners bear the burden of proof.  Rule               
               Transactions among family members are subject to careful               
          scrutiny.  Caligiuri v. Commissioner, 549 F.2d 1155, 1157 (8th              
          Cir. l977), affg. T.C. Memo. 1975-319; Estate of Van Anda v.                
          Commissioner, 12 T.C. 1158, 1162 (1949), affd. per curiam 192               
          F.2d 391 (2d Cir. 1951).  The taxpayer must show that there                 
          existed at the time of the transaction an intent to enforce                 
          collection of the indebtedness.  Andrew v. Commissioner, supra at           
          245.  Additionally, the taxpayer must show that the loan was made           
          with a reasonable expectation of repayment.  Mercil v.                      
          Commissioner, 24 T.C. 1150 (1955).  The execution of a note does            
          not necessarily establish the existence of a bona fide debt.                
          Estate of Van Anda v. Commissioner, supra at 1162.                          

               3Sec. 7491(a), which in some circumstances places the burden           
          of production on respondent, is not applicable here as the Court            
          decides the case without regard to the burden of proof.                     

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