- 38 -
Solv-Ex’s loss on its sale of Canadian operating assets and
leases to Koch “resulted in a negative net worth from the Koch
transaction of $13 million at December 31, 1997.” The financial
statements that are in evidence show Solv-Ex to have been solvent
as of March 31, 1997, and insolvent by less than the $2 million
owed to Mr. Rendall as of August 31, 1998. Neither Mr. Ciotti’s
testimony nor the balance sheets in evidence take into account
Solv-Ex’s off-balance-sheet assets (e.g., the retained
technology), the value of which obviously would have had a
favorable impact on Solv-Ex’s financial condition at any point.
Even if Solv-Ex was technically insolvent at the end of
1997, there is no evidence that the insolvency was so extreme as
to cause grounds “for abandoning any hope of recovery.”
Milenbach v. Commissioner, 106 T.C. at 205. A debtor’s poor
financial condition, including insolvency, does not establish
that the debt is worthless, particularly where, as in this case,
the debtor remains a going concern and there is a reasonable hope
that its financial condition will improve in the not too distant
future. See Roth Steel Tube Co. v. Commissioner, 620 F.2d 1176,
1181-1182 (6th Cir. 1980), affg. 68 T.C. 213 (1977); Riss v.
Commissioner, 56 T.C. 388, 408 (1971), affd. in part, revd. and
remanded on another issue 478 F.2d 1160 (8th Cir. 1973), affd.
sub nom. Commissioner v. Transp. Manufacturing & Equip. Co., 478
Page: Previous 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 NextLast modified: May 25, 2011