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Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946),
affd. 162 F.2d 513 (10th Cir. 1947). Petitioner’s claimed legal
fees are disallowed.2
Dejanu Loan -- $15,000
A taxpayer is allowed to deduct as a short-term capital loss
nonbusiness debts that become worthless within the year. Sec.
166(d); sec. 1.166-5(a)(2), Income Tax Regs.
Whether a nonbusiness debt is to be treated as worthless in
a particular year is a question of fact to be resolved by an
examination of the circumstances and events. Aston v.
Commissioner, 109 T.C. 400, 415 (1997); Crown v. Commissioner, 77
T.C. 582, 598 (1981). Relevant considerations include the
solvency of the debtor and efforts to collect the debt from the
debtor. Crown v. Commissioner, supra.
On the facts of this case, petitioner has provided
sufficient evidence to establish that the $15,000 Dejanu
nonbusiness loan became worthless in 1997, not in 1995 as
2We note further that even if petitioner had substantiated
the legal fees in question, respondent contends that any
deductions relating to the legal fees would be limited by the
passive activity loss limitation of sec. 469(a). Petitioner
contends that under State law he became a general partner in
Belmont Gardens L.P. due to his level of activity in the
business, and therefore that sec. 469(a) should not apply to him.
A taxpayer, however, is considered to hold a limited partnership
interest without regard to State law if, in the partnership
agreement, the taxpayer is designated as having a limited
partnership interest. Sec. 1.469-5T(e)(3)(A), Temporary Income
Tax Regs., 53 Fed. Reg. 5726 (Feb. 25, 1988).
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