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The Court is satisfied that a genuine debtor/creditor
relationship existed in this case between petitioners and their
son, Michael. That conclusion is fortified by petitioners’
concurrent advance to Michael of $42,000, and their candid
testimony at trial that they never expected repayment of that
amount but fully expected repayment of the $55,000. They
followed the advice of their attorney to have the $55,000 advance
documented by execution of a promissory note by their son. The
evidence does not support respondent’s contention that the
$55,000 note did not constitute a valid debt simply because the
note did not provide a repayment schedule, had no maturity date,
and no default provisions. The Court construes the note as a
valid, legal, enforceable obligation that was due on demand. The
Court further concludes that there was a debtor/creditor
relationship between petitioners and Michael. Accordingly,
petitioners are entitled to a nonbusiness bad debt deduction
pursuant to section 166(d).
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for petitioners.
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Last modified: May 25, 2011