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appear for trial, respondent moved for a default judgment, and we
granted the motion with respect to the original deficiency as
corrected. However, even if we had denied respondent’s motion,
we would still have concluded that respondent’s determination
disallowing petitioner’s Schedule C expenses must be sustained.
Our reasons are summarized below.
B. Bad Debt Deduction
Section 166(a)(1) authorizes a taxpayer to deduct a business
bad debt that becomes worthless during the year. To be entitled
to the deduction, the taxpayer must prove (1) that a bona fide
debt was created obligating the debtor to pay a fixed or
determinable sum of money, (2) that the debt was created or
acquired in proximate relation to a trade or business, and (3)
that the debt became worthless in the year claimed. See United
States v. Generes, 405 U.S. 93, 96 (1972); Calumet Indus., Inc.
v. Commissioner, 95 T.C. 257, 284 (1990). A debt is bona fide if
it arose “from a debtor-creditor relationship based upon a valid
and enforceable obligation to pay a fixed or determinable sum of
money.” Sec. 1.166-1(c), Income Tax Regs.
In this case, petitioner claimed a bad debt deduction for
compensation that he claimed he was entitled to but did not
receive in connection with his participation in a joint venture
with Thacker Engineering, Inc. (Thacker), beginning in
approximately 1995. Petitioner, a cash basis taxpayer, did not
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