Melvin D. Lee - Page 11

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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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