- 6 - Only a bona fide debt qualifies for the bad debt deduction. Sec. 1.166-1(c), Income Tax Regs. A bona fide debt is one that arises from a debtor-creditor relationship based upon a valid, enforceable obligation to pay a fixed or determinable sum of money. Id.; see also Estate of Van Anda v. Commissioner, 12 T.C. 1158, 1162 (1949), affd. 192 F.2d 391 (2d Cir. 1951). Factors indicative of a bona fide debt include whether: (1) Evidence of indebtedness exists; i.e., a note; (2) any security is requested; (3) there has been a demand for repayment; (4) the parties’ records reflect the transaction as a loan; (5) any payments have been made; and (6) any interest was charged. A gift is not considered a debt for purposes of section 166. Sec. 1.166-1(c), Income Tax Regs.; see also Calumet Indus., Inc. v. Commissioner, 95 T.C. 257, 285 (1990). Purported “loans” between family members are subject to rigid scrutiny and are presumed to be gifts. Estate of Van Anda v. Commissioner, supra at 1162. The presumption may be rebutted by proving that at the time of the transaction there existed a real expectation of repayment and an intent to enforce collection of the “debt”. See id. (and cases cited thereat). In a letter attached to petitioners’ joint return, Mr. Sizelove stated that he lent $10,000 to help his son and his new wife, he did not expect to recover this $10,000 “Gift” nor thePage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 NextLast modified: March 27, 2008