                        T.C. Memo. 1995-586



                      UNITED STATES TAX COURT



                  MARIA D. LERMA, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18324-94.      Filed December 12, 1995.



     Maria D. Lerma, pro se.

     Frank R. Hise, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     COHEN, Judge:   Respondent determined a deficiency of $8,913

in petitioner's Federal income tax for 1987 and an addition to

tax of $2,228 pursuant to section 6651(a)(1).   Unless otherwise

indicated, all section references are to the Internal Revenue

Code in effect for the year in issue, and all Rule references are

to the Tax Court Rules of Practice and Procedure.
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     After concessions, the deficiency and the addition to tax in

dispute are in the amounts of $5,610 and $1,402, respectively.

The issues remaining for decision are whether petitioner is

entitled to a nonbusiness bad debt deduction for 1987 and whether

petitioner is liable for the addition to tax for failure to file

timely her tax return for that year.

                           FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.    At the

time the petition was filed, petitioner resided in San Antonio,

Texas.

     In 1987, petitioner left her job to return to school to seek

her master's degree in nursing.    Petitioner withdrew money from

her retirement plan in order to finance her education and to

support her family while she attended school.

     During 1987, petitioner was dating Raul Machuca (Machuca).

Machuca was experiencing financial difficulties, and petitioner

attempted to assist him.    For example, to prevent his car from

being repossessed, Machuca transferred the title to the car to

petitioner, and petitioner, using the car as collateral, borrowed

$9,500.   Petitioner never drove or possessed the car.   When

petitioner paid off the loan, title to the car was transferred

back to Machuca.   Machuca later gave petitioner a check for

$50,000 as partial payment for this and other assistance

petitioner had given Machuca.    Petitioner was unable to cash the
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check because Machuca's account lacked sufficient funds.      The

relationship between petitioner and Machuca deteriorated around

this time.

       In 1988, petitioner experienced financial difficulties.      She

did not file her 1987 Federal income tax return until September

1991 because she was unable to pay the taxes due.    On the return

filed in 1991, petitioner claimed $77,000 on Schedule D, Capital

Gains and Losses and Reconciliation of Forms 1099-B, as a

nonbusiness bad debt deduction.    In an amended return filed in

September 1993, petitioner reclassified $50,000 of the $77,000

bad debt as business bad debt.    No documentation or other

evidence of the bad debt exists.

                               OPINION

Bad Debt Expense

       Section 166(a) provides a deduction for any debt that

becomes worthless within the taxable year.    At trial, petitioner

conceded that there was no basis for classifying as a business

bad debt any portion of the bad debt deduction that she claimed.

A nonbusiness bad debt is considered a loss from the sale or

exchange of a short-term capital asset.    Sec. 166(d)(1)(B).

       "Only a bona fide debt qualifies for purposes of section

166.    A bona fide debt is a debt which arises 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.    Petitioner bears the burden of
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proving, first, that a bona fide debt existed and, second, that

it became worthless in 1987.   Rule 142(a); Crown v. Commissioner,

77 T.C. 582, 598 (1981); Rude v. Commissioner, 48 T.C. 165, 172

(1967).

     In determining whether a debtor-creditor relationship

represented by a bona fide debt exists, the Court considers the

facts and circumstances.   Fisher v. Commissioner, 54 T.C. 905,

909 (1970).   The test in making such a determination is whether

the debtor is under an unconditional obligation to repay the

creditor and whether the creditor intends to enforce repayment of

the obligation.   Id. at 909-910; sec. 1.166-1(c), Income Tax

Regs.

     The objective indicia of a bona fide debt include whether a

note or other evidence of indebtedness existed and whether

interest was charged.   See Clark v. Commissioner, 18 T.C. 780,

783 (1952), affd. 205 F.2d 353 (2d Cir. 1953).    Also considered

are the existence of security or collateral, the demand for

repayment, records that may reflect the transaction as a loan,

and the borrower's solvency at the time of the loan.   See Road

Matls., Inc. v. Commissioner, 407 F.2d 1121 (4th Cir. 1969),

affg. in part, vacating in part and remanding T.C. Memo. 1967-

187; Jewell Ridge Coal Corp. v. Commissioner, 318 F.2d 695, 699

(4th Cir. 1963), affg. T.C. Memo. 1962-194; Zimmerman v. United

States, 318 F.2d 611, 613 (9th Cir. 1963); Montgomery v. United

States, 87 Ct. Cl. 218, 23 F. Supp. 130 (1938).
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     In this case, petitioner testified that she intended that

the debt be repaid.    Petitioner did not call Machuca as a witness

and did not present any reliable evidence of Machuca's financial

position in 1987.    On the minimal evidence presented, and in view

of the personal relationship between petitioner and Machuca, we

cannot conclude that there is a bona fide, enforceable obligation

to repay.   See Caligiuri v. Commissioner, 549 F.2d 1155, 1157

(8th Cir. 1977), affg. T.C. Memo. 1975-319; Perry v.

Commissioner, 92 T.C. 470, 481 (1989), affd. without published

opinion 912 F.2d 1466 (5th Cir. 1990).    As a result of

petitioner's failure to prove the existence of a bona fide debt,

we need not consider whether the "loans" became worthless in

1987.   Petitioner is not entitled to any deductions with respect

to the advances she made to Machuca; therefore, respondent's

determination is sustained on this issue.

Section 6651(a)(1) Addition to Tax

     Section 6651(a)(1) provides for an addition to tax in the

case of the failure to file a timely return unless it is shown

that such failure is due to reasonable cause and not due to

willful neglect.    Petitioner bears the burden of proving that

respondent's determination on this issue is erroneous.     Rule

142(a); Lee v. Commissioner, 227 F.2d 181, 184 (5th Cir. 1955),

affg. a Memorandum Opinion of this Court dated July 31, 1953.     At

trial, petitioner testified that she did not timely file her 1987

Federal income tax return because she lacked the money to pay the
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taxes owed.   Petitioner's unfortunate personal and financial

circumstances do not constitute reasonable cause for failure to

file a timely tax return.   See Jones v. Commissioner, 25 T.C.

1100, 1105-1106 (1956), revd. on other grounds 259 F.2d 300 (5th

Cir. 1958); Sanders v. Commissioner, 21 T.C. 1012, 1019 (1954),

affd. 225 F.2d 629 (10th Cir. 1955); Nelson v. Commissioner, T.C.

Memo. 1974-239; sec. 301.6651-1(c)(1), Proced. & Admin. Regs.

Therefore, respondent's determination will be sustained.

                                            Decision will be entered

                                       for respondent in the amounts

                                       of the reduced deficiency and

                                       addition to tax.
