106 T.C. No. 8



                     UNITED STATES TAX COURT



    SHELDON R. AND PHYLLIS MILENBACH, ET AL.,1 Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 28514-92, 1571-93,         Filed March 28, 1996.
                  1572-93, 1573-93,
                  1574-93, 12129-94.




     1
      Cases of the following petitioners are consolidated
herewith: Los Angeles Raiders, a California Limited Partnership,
Allen Davis, Tax Matters Partner, docket No. 1571-93; Los Angeles
Raiders, a California Limited Partnership, Allen Davis, Tax
Matters Partner, docket No. 1572-93; Los Angeles Raiders, a
California Limited Partnership, Allen Davis, Tax Matters Partner,
docket No. 1573-93; Los Angeles Raiders, a California Limited
Partnership, Allen Davis, Tax Matters Partner, docket No.
1574-93; and Los Angeles Raiders, a California Limited
Partnership, A.D. Football, Inc., Tax Matters Partner, docket No.
12129-94.
                                 -2-

          P’s were partners of the Raiders, a professional
     football team that received municipal funds repayable
     only from specific sources of revenue. The partnership
     also received funds from settlement of a lawsuit
     brought by the City of Oakland.
          1. Held: Amounts received from the Los Angeles
     Memorial Coliseum Commission as “loans”, to be repaid
     from revenue received from luxury suites, are taxable
     when received, because the obligation to repay was not
     unconditional.
          2. Held, further, damages received from the City
     of Oakland were not allocated to goodwill or franchise
     value and are thus taxable.
          3. Held, further, income from discharge of
     indebtedness resulted when the agreement to build a
     stadium in the City of Irwindale became unenforceable.
          Bad debt issue also resolved.


     Barrie Engel, for petitioners.

     David W. Sorensen and Paul L. Dixon, for respondent.



     COHEN, Judge:    Respondent determined deficiencies in

Sheldon R. and Phyllis Milenbach’s Federal income taxes as

follows:

                      Docket No. 28514-92
               Year                  Deficiency

               1980                    $2,749
               1981                     1,822
               1982                     4,499

Respondent issued notices of Final Partnership Administrative

Adjustments (FPAA’s) determining adjustments to partnership items

as follows:
                                      -3-



Docket                            Adjustments                  Other
Number      Year Ended         to Ordinary Income           Adjustments1

 1573-93     12/31/83            $ 1,239,528                 $ 57,386
 1574-93     12/31/84              4,990,534                   35,505
 1571-93     12/31/85                787,108                   60,442
 1572-93     12/31/86              1,149,513                  121,759
12129-94     12/31/87             10,029,373                  100,871
12129-94     12/31/88             11,616,054                   51,973
12129-94     12/31/89             11,064,920                     (300)
      1
       The “Other Adjustments” related to respondent’s determination of
adjustments in the allowable depreciation and amortization deductions in each
year.

      After concessions by the parties in two stipulations of

settled issues and a concession on brief by petitioners, the

issues remaining for decision are:           (1) Whether $6.7 million

received from the Los Angeles Memorial Coliseum Commission during

the period 1982 through 1986 constituted taxable income to the

Los Angeles Raiders; (2) whether settlement payments received

during 1988 and 1989 from the City of Oakland constituted taxable

income to the Los Angeles Raiders; (3) whether $10 million

received from the City of Irwindale constituted taxable income to

the Los Angeles Raiders in 1987, 1988, or 1989; and (4) whether

the Los Angeles Raiders were entitled to a bad debt deduction in

1986.

      Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years in issue, and

all Rule references are to the Tax Court Rules of Practice and

Procedure.     The use of the term “loan” in the Findings of Fact is
                                 -4-

for convenience and is not conclusive as to characterization for

tax purposes.

                         FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

     Sheldon R. and Phyllis Milenbach resided in Oakland,

California, at the time their petition was filed.     Sheldon R.

Milenbach was a limited partner of the Los Angeles Raiders (the

Raiders) during 1980 through 1982.     Allen Davis is the tax

matters partner for 1983 through 1986.     A.D. Football, Inc., is

the tax matters partner for 1987, 1988, and 1989.

     The Raiders own and operate a professional football club and

hold a franchise in and are a member of the National Football

League (NFL).   During the years in issue, the Raiders' principal

places of business were Oakland, California, and Los Angeles,

California, respectively.   For many years prior to 1980, the

Raiders played their professional football games at the Oakland-

Alameda County Coliseum (Oakland Coliseum) in Oakland,

California.   The Raiders’ lease of the Oakland Coliseum expired

at the close of the 1979 NFL season.

Los Angeles Coliseum Agreement

     During 1979, the Raiders undertook negotiations with the

management of the Oakland Coliseum to amend and extend the term

of the then-about-to-expire lease.     The Raiders were also

negotiating with the Los Angeles Memorial Coliseum Commission
                                -5-

(LAMCC) for a lease to play home games in the Los Angeles

Memorial Coliseum (LA Coliseum).   On March 1, 1980, the Raiders

entered into a memorandum of agreement (1980 MOA) with the LAMCC.

This agreement provided for a $16.5-million loan to the Raiders.

Repayment was to be made in 30 equal annual payments with

interest at 7 percent.   Under the terms of the 1980 MOA, the

Raiders were allowed to construct luxury suites (suites) that

they would own.   The Raiders agreed to begin playing their home

games in the LA Coliseum at the start of the 1980 NFL season.

     When the Raiders’ move to Los Angeles was announced, the

City of Oakland (Oakland) filed an action against the Raiders in

eminent domain seeking to condemn for public use the Raiders’ NFL

franchise, business, and physical assets.   Oakland obtained a

temporary restraining order, and subsequently a preliminary

injunction, prohibiting the Raiders from relocating the team and

playing their home games anywhere but the Oakland Coliseum.

     At approximately the same time the Oakland suit was filed,

the NFL filed suit against the Raiders seeking enforcement of the

NFL constitution and bylaws.   The NFL claimed the Raiders were

required to obtain the necessary votes of the other NFL members

before the team could be relocated.   The NFL obtained a temporary

restraining order, and subsequently a preliminary injunction,

prohibiting the Raiders from relocating the team and playing

their home games anywhere but the Oakland Coliseum.
                                  -6-

     Due to the Oakland injunction and the NFL injunction, the

Raiders played their 1980 and 1981 home games at the Oakland

Coliseum pursuant to individually negotiated 1-year extensions of

the previous lease.   The Oakland injunction was dissolved on

June 9, 1980; reinstated on January 3, 1983; and ultimately

dissolved on August 10, 1984.    The NFL injunction was dissolved

on May 21, 1982.   The 1980 MOA was never implemented.

     On July 5, 1982, the Raiders entered into a memorandum of

agreement (1982 MOA) with the LAMCC.        The 1982 MOA provided that

the Raiders would begin playing their home games at the LA

Coliseum in 1982 and that the LAMCC would loan the Raiders

$6.7 million, at 10-percent interest, to be advanced as follows:

$675,000 per year for the first 4 years and $4 million no more

than 5 years from July 5, 1982.       The $4-million advance was to

come from one or more sources, including potential damages from

an antitrust suit against the NFL or from rental payments from

the 1984 Summer Olympic Games.       The loan was to be repaid with

12 percent of net receipts from operations of suites to be

constructed by the Raiders at the LA Coliseum.         As to the

construction of the suites, the 1982 MOA provided:

          4. The Partnership [Raiders] shall construct or
     cause to be constructed the following:

          (a) In the Coliseum - approximately 150 private
     suites, together with all appurtenant and related
     improvements; * * *

               *      *   *      *      *     *    *
                                 -7-

          Construction of such improvements shall commence
     as soon as practicable as determined by the Partnership
     in its reasonable discretion, having in mind pending
     and potential litigation involving the parties hereto,
     or either of them, financial considerations, and other
     considerations reasonably deemed important or
     significant to the Partnership. * * * [Emphasis
     added.]

     Beginning with the 1982 NFL season and throughout the years

in issue, the Raiders played their home games at the LA Coliseum.

The Raiders and the LAMCC did not enter into a formal lease (1984

lease) until December 8, 1984.   The 1984 lease was made

effective, however, as of the beginning of the 1982 NFL season.

The 1984 lease included provisions for the $6.7-million loan to

the Raiders on essentially the same terms as the 1982 MOA and

contained a repayment provision that was essentially the same as

the 1982 MOA repayment provision, i.e., 12 percent of net

revenues from operations of suites to be constructed by the

Raiders.   All physical improvements to the LA Coliseum and the

surrounding premises, i.e., the practice facilities, were to

revert to the LAMCC upon the termination of the lease.     As to the

construction of the suites, the 1984 lease provided:

          7.05 Construction of the Suites and the Press Box
     Improvements shall commence as soon as practicable as
     determined by the Lessee [Raiders] in its reasonable
     discretion, having in mind pending and potential
     litigation involving the parties hereto, or either of
     them, financial considerations, and other
     considerations reasonably deemed important or
     significant to the Lessee. Lessee shall use its best
     efforts to begin and complete Suite construction as
     soon as possible and upon completion subject to the
     terms hereof, to use its best efforts to rent, lease,
     license, grant or otherwise deal with the same so as to
                                 -8-

     maximize their use and obtain the reasonable rental
     value thereof. The plans and specification for the
     Press Box Improvements and Suites and the timing and
     manner of all construction at the Stadium must be
     approved by Lessor, which approval will not be
     unreasonably withheld or delayed. * * * [Emphasis
     added.]

     The 1980 MOA, the 1982 MOA, and the 1984 lease were the

result of arm’s-length bargaining between the Raiders and the

LAMCC.

     The $6.7-million loan was represented by a promissory note

dated November 30, 1984, the terms of which were as provided in

the 1982 MOA and the 1984 lease.   The Raiders were to commence

repayment of the $6.7-million loan 3 years after the completion

of construction of the suites.   The loan was nonrecourse against

the Raiders, secured solely by the improvements to be made.    The

$6.7-million loan was funded with a $4-million advance in 1984

and by the following credits against the rent due from the

Raiders:

           Year                        Amount

           1982                    $  442,401
           1983                       665,690
           1984                       675,000
           1985                       675,000
           1986                       241,909
                         Total     $2,700,000

During these years, the Raiders took corresponding deductions for

their rent expense.

     Due to the concern of the Los Angeles Olympic Committee over

the timing of construction, plans to construct the suites prior
                                  -9-

to the 1984 Summer Olympics were abandoned.   In 1985 and 1986,

the Raiders worked with architects and contractors on the design

and planning of the suites.   The construction of the suites began

in early 1987 but was halted on or about February 18, 1987.

Construction was stopped due to a dispute between the Raiders and

the LAMCC over the obligations of the LAMCC to perform certain

improvements to the LA Coliseum.

     The Raiders made no payments on the LAMCC loan.    The Raiders

did not construct the suites at the LA Coliseum.

     The LAMCC did not seek repayment of the $6.7 million until

after the Raiders signed a memorandum of agreement with the City

of Irwindale (Irwindale MOA), discussed infra.     The LAMCC filed a

lawsuit against the Raiders on September 30, 1987, claiming that

the Raiders were in breach of their lease and demanding repayment

of the $6.7 million.   In the Raiders’ answer to the LAMCC

complaint, the Raiders alleged:

          That Raiders has not constructed the suites or the
     press box improvements referred to in the lease
     agreement because, by reason of considerations
     reasonably deemed important and significant to Raiders,
     including plaintiff’s [LAMCC’s] breach of its
     commitment to modernize and reconfigure the stadium as
     hereinafter alleged, Raiders was never under any
     obligation to construct the suites or press box
     improvements, and, Raiders has not obtained a building
     permit or the surety bonds referred to in the lease
     agreement * * * [Emphasis added.]

The lawsuit was settled on September 11, 1990, with the parties

entering into a mutual release.
                               -10-

     Respondent, in the notice of deficiency for 1982 and in the

FPAA’s for 1983, 1984, 1985, and 1986, disallowed the Raiders’

rent deductions because the rent was not currently payable and

was considered part of the “loan” from the LAMCC.   In the

alternative, if the rent deductions were allowed, respondent

determined that the amount advanced under the “loan” was

includable in gross income.   For 1984, respondent determined that

the additional $4-million advance was includable in the Raiders’

gross income.

City of Oakland Lawsuit Settlement

     The lawsuit filed by Oakland to keep the Raiders from moving

to Los Angeles was pending for several years and ultimately was

decided in favor of the Raiders.   As part of that eminent domain

lawsuit, the Raiders filed a notice of claim for damages (notice

of claim) and a Supplemental Brief in Support of Right to Seek

Damages in the Present Action (supplemental brief).   The notice

of claim sought damages for Oakland’s denial of the Raiders’

“free and untrammeled possession and use of the property sought

to be condemned and thereby preempted Raiders’ full possessory

right to the enjoyment and use of the Raiders’ property”.    The

Raiders also claimed that Oakland had interfered with the

Raiders’ free use and enjoyment, thus taking property without

compensation.   The notice of claim enumerated several ways, in a

nonexclusive list, in which Oakland had caused the Raiders to

suffer damages, including lost revenue and increased expense,
                               -11-

during the 2 years that the Raiders were enjoined from playing

their games in Los Angeles:   (1) The expense of continued

operation of a summer training camp in Santa Rosa, California;

(2) the prevention of the establishment of a Southern California

training facility; (3) the necessity of leasing and maintaining a

practice field in both Alameda County and Los Angeles County;

(4) the prevention of the construction of suites in the LA

Coliseum, resulting in millions of dollars in lost revenue;

(5) the reduced attendance at home games at the LA Coliseum;

(6) the decrease in season ticket sales; (7) the loss of radio

revenue; and (8) the expenses associated with housing,

relocation, and transportation of the Raiders personnel. In the

supplemental brief, the Raiders based their argument for recovery

on Cal. Civ. Proc. Code sec. 1268.620 (West 1982).

     On February 23, 1987, the Raiders filed a complaint in

inverse condemnation against Oakland for damages arising out of

the eminent domain action alleging that:

     [Oakland] denied the Raiders the free and untrammeled
     possession and use of the property sought to be
     condemned and thereby preempted Raiders’ full
     possessory right to the enjoyment and use of the
     Raiders property; interference with Raiders free use
     and enjoyment also constituted a taking of an interest
     in Raiders’ property for which Raiders have not been
     compensated.

As of July 28, 1986, the Raiders claimed that the damages

sustained and yet to be sustained totaled in excess of

$26 million.
                                -12-

     At some time before April 1988, the Raiders completed an

82-page damage study that alleged total losses of $25,083,146.99

as a result of the Oakland suit.    This study indicates that the

Raiders suffered the following damages:    (1) Lost Olympic

committee contract revenue; (2) lost attendance income; (3) lost

food and beverage income; (4) lost merchandise income; (5) lost

game program income; (6) lost Oakland practice field revenue;

(7) lost suite income; (8) lost radio income; (9) lost per diem;

(10) lost Santa Rosa air travel revenue; and (11) lost Oakland

office rent.

     On May 6, 1987, the notice of claim in the eminent domain

action and the complaint in inverse condemnation were

consolidated.    On November 10, 1988, the Raiders and Oakland

settled the lawsuit.   The settlement provided for $4 million plus

interest to be paid in $1-million (plus interest) installments

over 4 years.    The settlement agreement recited that the

agreement was entered into by the parties for the “purpose of

settling disputed claims involving the restoration of lost

franchise value and does not constitute an admission of liability

of any party.”

     In the FPAA’s for 1988 and 1989, respondent determined that

$600,000 ($1 million less $400,000 attorney's fees) in each year

constituted taxable income.
                                -13-

City of Irwindale Agreement

     On August 20, 1987, the Raiders and the City of Irwindale

(Irwindale) entered into the Irwindale MOA.    The Irwindale MOA

provided that Irwindale would loan the Raiders $115 million to be

used in the construction of a stadium in Irwindale where the

Raiders would play their home games beginning with the 1992 NFL

season.    Irwindale and the Raiders estimated that revenue during

the first year of the stadium’s operation would reach

approximately $24 million.    The Raiders opened an Irwindale

office staffed with five to six people in 1987, and the office

remained open until some time in 1992.

     On or about August 19, 1987, Irwindale advanced the Raiders

$10 million against the $115-million loan.    The Raiders, in turn,

signed and delivered a $115-million nonrecourse promissory note

secured by a deed of trust.    The note provided that the repayment

of the principal and interest was to be made exclusively from

stadium net revenue.   In addition to the $10-million advance, the

Irwindale MOA required an additional $10 million:

     to be placed in an escrow interest-bearing account
     within seven (7) days on behalf of the Raiders and the
     entire $10,000,000.00 plus interest will be paid to the
     Raiders upon 1) passage of the G.O. [general
     obligation] Bond Issue on November 3, 1987; and
     2) assurance of mutually acceptable parking facilities
     prior to November 3, 1987.

Irwindale never deposited the additional $10 million in an escrow

account.
                               -14-

     Obstacles in the performance of the terms of the agreement

were contemplated by the Irwindale MOA, in the following

provisions:

          8.5 If any obstacle is imposed by third parties
     (such as litigation, legislation, or failure to
     cooperate) it is agreed that both parties pledge good
     faith cooperation to overcome any such obstacle.
     However, these obstacles will not be construed as a
     tolling event for the project itself, nor will it be
     construed as a reason to refund any exchange of monies,
     nor will it be construed as a forfeiture. It is
     further agreed, that both parties will move forward
     with the project and mutually work to resolving the
     problem. * * *

          8.6 Any third party obstacle will not excuse
     either party from proceeding with the project except to
     the extent ordered by court, e.g. an injunction.

Sections 8.5 and 8.6 did not apply to Irwindale’s obligation to

place $10 million in escrow.   If Irwindale failed to fulfill its

obligations under the agreement by November 4, 1987, and that

failure was not due to third-party obstacles, the Raiders were to

be relieved of all obligations under the Irwindale MOA and were

entitled to retain $20 million, without a repayment obligation,

as consideration for the execution of the Irwindale MOA.

     On September 8, 1987, the first of two lawsuits was filed to

prevent the transaction contemplated by the Irwindale MOA.     A

preliminary injunction that was issued on September 30, 1987, and

ultimately a preemptory writ of mandate that was issued on

March 29, 1988, prevented further performance under the Irwindale

MOA until an environmental impact report was made concerning the

project.   Under the terms of the Irwindale MOA, Irwindale was
                                -15-

required to prepare any required environmental impact studies.

The second lawsuit was filed on October 16, 1987, and sought to

require the Raiders to return the initial $10-million advance to

Irwindale.

     In an amended answer dated March 21, 1988, the Raiders

alleged:   “the City of Irwindale * * * [has] paid the Raiders

$10 million pursuant to that Agreement [Irwindale MOA], and that

the Raiders are entitled to retain that money whether or not the

stadium is built.”   In a Memorandum of Points and Authorities

(the memorandum) filed in response to a Motion for Summary

Judgment, Irwindale alleged:    “regardless of what happens, the

Raiders are permitted to keep the $10,000,000”.

     The environmental impact report was completed on January 12,

1989, and the preemptory writ of mandate was discharged on

February 17, 1989.   During the time the preemptory writ of

mandate was in effect, circumstances relating to the Irwindale

MOA changed as follows:   (1) Bond interest rates increased from

9 percent to more than 11 percent; (2) Los Angeles County refused

to lease Irwindale land adjacent to the proposed site to be used

for parking; (3) a second site for the stadium was required to be

selected; and (4) another environmental impact report was

required for the second site.    In September 1988, the California

legislature passed a bill that prohibited Irwindale from using

general obligation bonds to construct a stadium that Irwindale

would then turn over to any private company, such as the Raiders;
                                -16-

this law precluded Irwindale from complying with the terms of the

Irwindale MOA.

     The Raiders continued to discuss various options with

Irwindale through 1990.   Because general obligation bonds were no

longer an option, the later Irwindale proposals dealt mainly with

financing options.   Financing alternatives included an employee

stock option plan, which was problematic due to the numerous

members of the Raiders’ front office staff who were covered by

the NFL retirement plan, and junk bonds, which the Raiders

rejected.    A larger development plan that would have included a

stadium and other Raiders' facilities was also rejected by the

Raiders.    One of the problems facing the Raiders in many of the

proposals was the NFL debt limitation that prevented the pledge

of the Raiders' franchise as security.

     The Irwindale staff that worked on the negotiations with the

Raiders changed throughout the negotiations.   On November 6,

1989, the Raiders notified Irwindale that Irwindale had not

fulfilled its commitments under the Irwindale MOA.    By mid- to

late December 1989, one of the Irwindale lead negotiators

declared that the parties were back where they had started

2 years earlier.   At that point, the Raiders were anticipating

approximately 4 to 6 months before a transaction could be

completed.   As part of this new transaction, the Raiders would

have been expected to ensure a greater stream of revenue,

approximately $19 million per year, to repay the loan.    During
                                -17-

the first quarter of 1990, the Raiders sought a more specific

proposal from Irwindale, but none was forthcoming.

     Between 1987 and 1989, the Raiders were also engaged in

negotiations with other venues for possible stadium construction

and relocation.   The lawsuits arising out of the Irwindale MOA

were settled in October 1992.   The Raiders were not required to

repay the initial $10 million received from Irwindale.

Bad Debt Deduction

     The Raiders, for some time prior to their move to Los

Angeles, had contracted with Bob Speck Productions (Speck) for

the television and radio broadcast rights to certain games.

Speck sold the commercial time during these broadcasts to various

advertisers.   By a letter dated April 9, 1986, Speck was granted

the rights to produce Raiders' broadcasts for the 1986, 1987, and

1988 NFL seasons.

     Speck entered into a contract with DCA Marketing and

Promotional Services, Inc. (DCA), on May 28, 1986, that

transferred certain of Speck’s rights to produce Raiders'

broadcasts for 1986.   The Raiders were not a party to this

contract.   Payments due under the Speck/DCA agreement were to be

made directly to the Raiders, however.

     At the end of 1986, Speck still owed $200,000 on the

agreement for the 1985 broadcast rights.   Of the amounts due for

the 1986 broadcasts, $750,000 was not paid.   Final payments under
                                 -18-

the agreement for the 1986 season were not due, however, until

the spring of 1987.

     Jeffrey Birren (Birren), in-house counsel for the Raiders,

was involved in attempting to collect from Speck during 1986.

Birren met face to face with Speck several times during 1986 to

discuss collection.   Speck, in a letter dated November 20, 1987,

disputed the amount of the remaining balance owed for the 1985

season, but Speck agreed that some amount was still owed on the

1985 contract and that approximately $200,000 was still owed on

the 1986 contract.    In a letter dated December 7, 1987, the

Raiders indicated that they were still seeking collection of the

remaining balance that Speck owed from the 1985 and 1986 seasons.

The Raiders and Speck continued to do business until sometime

after 1990.

     The Raiders deducted $400,000 ($200,000 due from Speck for

the 1985 agreement and $200,000 of the $750,000 due from Speck

for the 1986 agreement) as a bad debt deduction on their 1986

Federal income tax return.    Respondent, in the FPAA for 1986,

disallowed the deduction because the Raiders had not established

that the debt had become worthless during 1986.

                               OPINION

Los Angeles Coliseum Agreement

     Gross income, as used in the Internal Revenue Code, includes

all income from whatever source derived, sec. 61(a), encompassing

all “accessions to wealth, clearly realized, and over which the
                               -19-

taxpayers have complete dominion.”     Commissioner v. Glenshaw

Glass Co., 

, 431 (1955).    Generally, proceeds of a

loan do not constitute income to a borrower because the benefit

is offset by an obligation to repay.     United States v. Rochelle,

, 751 (5th Cir. 1967); Arlen v. Commissioner, 

, 648-649 (1967); see Vaughan v. Commissioner, T.C. Memo.

1994-8.   Whether a particular transaction actually constitutes a

loan, however, is to be determined upon consideration of all of

the facts.   Fisher v. Commissioner, 

, 909 (1970).

     Petitioners argue that the $6.7 million received from the

LAMCC was a loan and, therefore, not taxable income.    Respondent

contends that the Raiders did not have an unconditional

obligation to repay the $6.7 million, and, thus, the Raiders had

taxable income upon receipt of the funds.

     Petitioners cite Commissioner v. Indianapolis Power & Light

Co., 

 (1990), in support of their argument that the

$6.7 million represented a valid debt that was not includable in

the Raiders' taxable income.   In that case the Supreme Court

addressed the issue of whether deposits required to assure

payment of future bills for electric service were taxable to the

power company.   The Supreme Court analyzed the control and

dominion that the power company enjoyed over the deposits in

determining that the deposits did not constitute taxable income

at the time deposited.
                               -20-

     IPL hardly enjoyed “complete dominion” over the
     customer deposits entrusted to it. Rather, these
     deposits were acquired subject to an express
     “obligation to repay,” either at the time service was
     terminated or at the time a customer established good
     credit. So long as the customer fulfills his legal
     obligation to make timely payments, his deposit
     ultimately is to be refunded, and both the timing and
     method of that refund are largely within the control of
     the customer. [Id. at 209.]

The Supreme Court’s reasoning does not support petitioners’

position.   Under the terms of the 1982 MOA, the Raiders, the

borrower, controlled whether or not repayment of the $6.7 million

would be triggered.   In contrast, in Commissioner v. Indianapolis

Power & Light Co., supra, the customer, i.e., the lender,

controlled whether or not the deposit was returned by making

timely payments of the utility bills.   The Raiders, unlike the

power company, were not subject to an express obligation to repay

within the lender’s control.

     The Raiders had the discretion to determine if and when the

suites would be constructed, as demonstrated by the terms of the

1982 MOA and the 1984 lease.   Although both documents limited the

Raiders’ discretion by a standard of reasonableness, the

agreements gave the Raiders great latitude in the timing of

construction.

     Where the performance of a party’s obligations under a

contract is subject to such party’s unlimited discretion, the

duties ostensibly imposed upon that party are illusory for income

tax purposes.   See Schulz v. Commissioner, 

, 494 (7th
                               -21-

Cir. 1982), affg. T.C. Memo. 1980-568; Alterman Foods, Inc. v.

United States, 

, 879 (5th Cir. 1974); Saunders v.

United States, 

, 1050 (9th Cir. 1971).   While the

Raiders may well have intended to construct the suites, in the

context of the agreement, any obligation to construct the suites

was illusory.

     Petitioners point out that the Raiders, under the terms of

the agreement, were to “begin and complete * * * construction as

soon as possible”; the timing of construction, however, was still

to be determined by the Raiders, in their reasonable discretion.

Planning for the suites was undertaken in 1985 and 1986 and

actual construction began and was halted in February 1987.    While

construction was stopped due to a dispute between the Raiders and

the LAMCC, the Raiders at this time were contemplating their move

to Irwindale, which was represented by a formal agreement in

August 1987.

     Repayment of the $6.7 million was to commence 3 years after

the construction of the suites, and repayment was to be solely

from the net revenues from suite operations.   If the Raiders did

not construct the suites, which was the case, there would be no

suite revenues to use for repayment.   No default or alternative

payment provision was included in the 1982 MOA, the 1984 lease,

or the promissory note.   The nonrecourse promissory note was

secured only by the improvements, i.e., the suites.   When the
                                 -22-

Raiders did not construct the suites, the LAMCC was without a

source for repayment.

     Respondent points out that courts, including this Court,

have recognized the concept that, to be a valid debt for tax

purposes, there must exist an unconditional obligation to repay.

See, e.g., Midkiff v. Commissioner, 

, 734-735 (1991),

affd. sub nom. Naguchi v. Commissioner, 

 (9th Cir.

1993) (quoting Howlett v. Commissioner, 

, 960 (1971)

(“Indebtedness is ‘an existing, unconditional, and legally

enforceable obligation for the payment of a principal sum.’”)).

The Raiders’ obligation to repay the LAMCC was both conditional

and contingent in these cases.    Because the Raiders had the

ability to control the repayment, the Raiders’ dominion and

control over the funds at the time they received them was

sufficient to require their inclusion in the Raiders’ gross

income.

     No evidence was presented to indicate that the LAMCC sought

to enforce the Raiders’ agreement to build the suites prior to

the Raiders’ announcement of their intention to move to Irwindale

in late 1987.   Petitioners presented testimony of representatives

of both the Raiders and the LAMCC, purportedly to show the intent

to repay and to enforce repayment.      The testimony is ambiguous

and is contradicted in many respects by documentary exhibits.

The objective manifestations of intent in this instance are more

persuasive to us.
                               -23-

     Due to the contingent nature of the Raiders’ obligation, an

unconditional and enforceable debt did not exist for tax purposes

at the times that the $4 million advance and the rent credits

were received by the Raiders from the LAMCC.    Thus, we sustain

respondent’s determination that the Raiders had income in 1982,

1983, 1984, 1985, and 1986 equal to the amount of the rent

credits, and that, in 1984, the Raiders had an additional

$4 million in income from the advance made in 1984.

City of Qakland Lawsuit Settlement

     Petitioners bear the burden of proving that the damages

received from Oakland in settlement of the Raiders’ claims were

not includable in taxable income.     Rule 142(a); H. Liebes & Co.

v. Commissioner, 

 (9th Cir. 1937), affg. 

(1936).   Petitioners argue that the damages received were to

compensate the Raiders for damage to goodwill, and, thus, as a

return of capital, they would not be included in the Raiders’

gross income.   Respondent contends that the damages were to

compensate the Raiders for lost profits, and, therefore, the

Raiders would be required to include the settlement amounts

received in 1988 and 1989 in gross income.

     The parties generally agree on the legal principles that

govern the determination of this issue.    “‘[W]hether a claim is

resolved through litigation or settlement, the nature of the

underlying action determines the tax consequences of the

resolution of the claim.’”   Getty v. Commissioner, 

,
                                 -24-

1490 (9th Cir. 1990), revg. 

 (1988) (quoting Tribune

Pub. Co. v. United States, 

, 1177 (9th Cir. 1988)).

In characterizing the settlement payment for tax purposes, we

ask:    “‘In lieu of what were the damages awarded?’”   Tribune Pub.

Co. v. United States, supra (quoting Raytheon Prod. Corp. v.

Commissioner, 

, 113 (1st Cir. 1944), affg. 

(1943)).

       Petitioners have focused on the purpose referred to in the

settlement agreement (“settling disputed claims involving the

restoration of lost franchise value”) as the basis of their

argument that the damages were for injury to goodwill.    While the

stated purpose of the settlement agreement is to be considered,

courts “employ a broad approach in determining the true nature

and basis of a party’s claim.”    Getty v. Commissioner, supra at

1491.

       The parties in these cases have introduced several items of

evidence to show the true nature of the claim involved.    The

notice of claim filed by the Raiders with Oakland states:      “the

plaintiff [Oakland] has denied to defendant Raiders the free and

untrammeled possession and use of the property sought to be

condemned, viz, Raiders’ franchise in the National Football

League and has thereby itself preempted Raiders’ full possessory

rights”.    The notice of claim enumerated the ways in which

Oakland had caused the Raiders to suffer damages, including lost

revenue and increased expense.
                               -25-

     The Raiders’ basis for recovery in their supplemental brief

was Cal. Civ. Proc. Code sec. 1268.620 (West 1982), which allows

property owners to recover for economic injuries suffered as a

result of the pendency of eminent domain proceedings that are

abandoned or fail.   Cal. Civ. Proc. Code sec. 1268.620 (West

1982) provides in part:

          If, after the defendant moves from property in
     compliance with an order or agreement for possession or
     in reasonable contemplation of its taking by the
     plaintiff, the proceeding is dismissed with regard to
     that property for any reason or there is a final
     judgment that the plaintiff cannot acquire that
     property, the court shall:

               *     *    *    *      *   *   *

          (b) Make such provision as shall be just for the
     payment of all damages proximately caused by the
     proceeding and its dismissal as to that property.
     [Emphasis added.]

This section allows for the recovery of all damages, not just

injury to goodwill, caused by the eminent domain proceeding.

     The complaint in inverse condemnation, incorporating the

notice of claim and setting forth the inverse condemnation cause

of action, reiterated the damages stated in the notice of claim.

The November 10, 1988, agreement also settled the Raiders’

inverse condemnation claim.   Inverse condemnation is not a cause

of harm, but is merely a theory or remedy for vindication of a

property owner’s cause of action against a public entity for

damage to his property.   City of Mill Valley v. Transamerica Ins.

Co., 

, 600, 

, 637 (1979).
                                -26-

     The portions of an 82-page damage study produced by the

Raiders prior to April 1988 received in evidence indicate at

least 10 categories of lost revenue and increased expense

suffered by the Raiders as a result of the Oakland lawsuit.     The

total loss shown by the report was $25,083,146.99.

     Finally, we look to the settlement agreement entered into on

November 10, 1988.   The agreement states in part:   “The execution

of this Settlement Agreement by the parties is done for the

purpose of settling disputed claims involving the restoration of

lost franchise value and does not constitute an admission of

liability of any party.”    Emphasis added.

     In Armstrong Knitting Mills v. Commissioner, 

(1930), the Board of Tax Appeals considered a situation similar

to the one involved here.    In Armstrong Knitting Mills, two

lawsuits, one for breach of contract and one for tortious

interference with the taxpayer’s business, were consolidated and

settled.   The taxpayer did not include the settlement amount in

income but did disclose the settlement on its return.   The

taxpayer contended that the settlement was for injury to

goodwill, and the Commissioner argued that the settlement was for

lost profits.   The Board of Tax Appeals stated:

          The amount in question was paid to the petitioner
     in compromise and settlement of two suits, and there is
     no evidence to indicate in what proportion the amount
     could be allocated between the actions. Also, there is
     no evidence to establish the specific purpose for which
     the money was paid, other than that it was paid as a
     lump sum in compromise and settlement of the
                                 -27-

     litigation. Whether the amount represented damages for
     wrongful injury to the petitioner’s good will, or
     whether it represented damages for loss of profits, or
     indeed whether the amount was simply paid by the
     defendants to avoid further expense and harassment
     resulting from long continued litigation, does not
     definitely appear.

          However, upon examination of the declarations in
     the two actions referred to, we are unable to conclude
     that the plaintiff there was seeking damages only for
     alleged injury to its goodwill. * * * [Id. at 321.]

     While petitioners are not required to prove that the

settlement proceeds are clearly classifiable as what they claim

them to be, petitioners must show by a preponderance of the

evidence the merits of their claim that the settlement was

received for damage to goodwill.    Getty v. Commissioner, 913 F.2d

at 1492; Rockwell v. Commissioner, 

, 885 (9th Cir.

1975), affg. T.C. Memo. 1972-133.       The preponderance of the

evidence here shows that the damages that the Raiders sought were

for lost profits.   The 82-page damage study referred to the

damages incurred as lost revenue and lost income.       The notice of

claim, which also listed alleged damages, referred to extra

expenses incurred and lost revenues.       The Raiders have failed to

provide us with a basis upon which to estimate any portion of the

settlement that relates to damage to goodwill.       See Bresler v.

Commissioner, 

, 188 (1975) (estimation that a portion

of antitrust settlement was for injury to goodwill possible when

evidence showed business had failed as a result of the actions

from which the lawsuit arose).    Therefore, respondent’s
                               -28-

determination that the settlement proceeds received in 1988 and

1989 are includable in gross income will be sustained.

City of Irwindale Agreement

     Respondent contends that a valid debt did not exist with

regard to the Irwindale MOA.   Respondent asserts that the Raiders

had no obligation to repay the initial $10-million advance unless

Irwindale was successful in funding the remainder of the loan by

certain deadlines.   Furthermore, respondent points to the

provision for repayment solely from a percentage of the profits

from the stadium as further evidence that the obligation to repay

was conditional.

     Under the terms of the Irwindale MOA, the Raiders did not

control whether or not the $10 million would be repaid.

Irwindale was required under the Irwindale MOA to provide sites

for the stadium and other Raiders' facilities and to provide full

funding of the loan.   Otherwise, the Raiders would be relieved of

their obligation to repay the initial advance.   Unlike the LAMCC

loan, the advance was not under the Raiders' complete dominion

and control at the time the Raiders received the $10 million.

See Commissioner v. Glenshaw Glass Co., 

, 431 (1955).

     If Irwindale had provided the additional $105 million to the

Raiders, under the terms of the Irwindale MOA, those funds would

have been used to construct the stadium and other Raiders'

facilities in Irwindale, as well as to facilitate the move of the

Raiders' personnel to Irwindale.   Respondent’s argument that the
                                   -29-

advance did not constitute a loan because the repayment was to

come solely from the stadium net revenues is not persuasive.

Respondent argues that there is no evidence that the stadium, if

built, would have generated sufficient income to repay the

$10 million.    Estimates during the Irwindale negotiations,

however, indicated that revenues during the first year of the

stadium’s operation would be approximately $24 million.

     Alternatively, respondent argues that petitioners had income

in 1987, 1988, or 1989, as a result of the Raiders' being

discharged of their obligation to repay Irwindale.     Petitioners

contend that the Raiders’ obligation to repay was not discharged

in 1987, 1988, or 1989 because the Raiders and Irwindale

continued in their negotiations until at least 1990,

contemplating the repayment of the initial $10-million advance.

     In general, gross income includes all income from whatever

source derived, including income from the discharge of

indebtedness.    Sec. 61(a)(12).    The gain to the debtor from such

discharge is the resultant freeing up of his assets that he would

otherwise have been required to use to pay the debt.     See United

States v. Kirby Lumber Co., 

 (1931).

     Respondent has alleged several events that she claims

constitute a discharge of the Raiders’ obligation to repay in

1987, 1988, or 1989.
                                -30-

     1987

     Respondent argues that, if the $10 million was received as a

loan on August 19, 1987, the obligation to repay was immediately

terminated by the terms of the agreement on August 20, 1987.

This argument appears to be merely a reprise of the argument that

we have rejected above, i.e., that the “contingency” of repayment

(the full financing of the transaction) discharged the obligation

to repay.    Respondent also argues that Irwindale’s failure to

deposit $10 million in escrow within 7 days of the signing of the

agreement (by August 27, 1987) terminated the Raiders’ obligation

to repay.

     Petitioners argue that the escrow requirement was waived to

the extent that the timing of the second $10-million advance was

delayed.    Allen Davis and Birren testified at trial, without

contradiction, that the escrow requirement had been waived by the

Raiders in the hope that the stadium deal would work.    Their

testimony further shows that the Raiders intended to move to

Irwindale, and the waiver of the escrow deposit was a logical

response by the Raiders to facilitate the deal.

     Respondent argues that Irwindale’s failure to prepare and

file the environmental impact report and to pass the general

obligation bond issue by November 4, 1987, terminated the

Raiders’ obligation to repay.    The preliminary injunction that

was issued on September 30, 1987, prohibited the transfer of any

funds held in trust and participation in the bond measure
                               -31-

election until the environmental impact report was performed.

Although the terms of the Irwindale MOA required Irwindale to

complete the environmental impact study, the injunction

prohibited the Raiders and Irwindale from continuing in the

implementation of the Irwindale MOA.   By the terms of the

Irwindale MOA, third-party obstacles, such as the preliminary

injunction, did not excuse performance; therefore, the Raiders’

obligation to repay the loan was not discharged in 1987.

     1988

     Respondent argues that, by their statements in pleadings

filed in the lawsuits designed to stop this project, the Raiders

and Irwindale admitted that the Raiders were entitled to retain

the $10 million without obligation.    In the amended answer dated

March 21, 1988, the Raiders alleged that the Raiders were

entitled to retain that money whether or not the stadium was

built.   Irwindale conceded the right of the Raiders to keep the

$10 million “regardless of what happen[ed]”.

     Legislation enacted in September 1988, by its terms,

prohibited the implementation of the Irwindale MOA.    Although

negotiations continued after September 1988, those negotiations

were not conducted under the Irwindale MOA.    At trial, Birren

admitted that the legislation precluded Irwindale from complying

with the terms of the MOA.   General obligation bonds could not be

issued to construct a stadium that Irwindale would then turn over

to any private company, such as the Raiders.    The parties to the
                               -32-

Irwindale MOA and the Irwindale MOA, by its own terms, did not

contemplate any type of financing other than general obligation

bonds, as shown by the negotiation problems that arose after the

legislation was passed.   None of the alternative financing

proposals was acceptable to the parties.

     Under the terms of the Irwindale MOA, Irwindale and the

Raiders pledged to work in good faith to overcome any third-party

obstacle.   Although the Raiders and Irwindale continued to

negotiate toward an agreement, they were not bound by the terms

of the Irwindale MOA that could not at that time be legally

implemented.   The Raiders were relieved of their obligation to

repay the initial $10-million advance in 1988 and thus must

recognize discharge of indebtedness income in that year.

     Because we have determined that the Raiders had income

during 1988 resulting from discharge of indebtedness, we do not

address respondent’s alternative argument that petitioners had

income arising from the Raiders' being discharged of indebtedness

during 1989.

Bad Debt Deduction

     Section 166(a) provides that a taxpayer may deduct any debt

that becomes wholly or partially worthless within the taxable

year.   The parties do not dispute the existence of a bona fide

debt between the Raiders and Speck, but, instead, they disagree

as to whether any portion of the Speck debt became worthless

during 1986.
                               -33-

     Petitioners bear the burden of proving that the Speck debt

became worthless within the 1986 taxable year.    Rule 142(a);

Rockwell v. Commissioner, 

 (9th Cir. 1975), affg.

T.C. Memo. 1972-133; Crown v. Commissioner, 

, 598

(1981).   Specifically, petitioners must prove that the debt had

value at the beginning of the taxable year and that it became

worthless during that year.   Estate of Mann v. United States, 

, 275 (5th Cir. 1984); American Offshore, Inc. v.

Commissioner, 

, 593 (1991).

     There is no standard test or formula for determining

worthlessness within a given taxable year.   Crown v.

Commissioner, supra at 598.   The determination depends upon the

particular facts and circumstances of the case.    Generally,

however, the year of the worthlessness is fixed by identifiable

events that form the basis of reasonable grounds for abandoning

any hope of recovery.   United States v. S. S. White Dental

Manufacturing Co., 

 (1927); American Offshore, Inc.

v. Commissioner, supra at 593; Crown v. Commissioner, supra at

598; Dallmeyer v. Commissioner, 

, 1292 (1950).

Worthlessness is determined primarily by objective standards.

American Offshore, Inc. v. Commissioner, supra at 594; Perry v.

Commissioner, 

, 973 (1954).

     The amounts due from Speck under the 1985 agreement were

overdue, but the fact that accounts are overdue, standing alone,

does not warrant deducting them as worthless.    See Shippen v.
                               -34-

Commissioner, 

, 727 (1958), revd. and remanded on

other grounds 

 (5th Cir. 1960); Eastern New Jersey

Power Co. v. Commissioner, 

, 1040 (1938); Chicago

Ry. Equip. Co. v. Commissioner, 

, 459 (1926).    The

payments due under the 1986 agreement were not due, however,

until the spring of 1987.   The Raiders’ collection efforts in

1986 consisted mainly of Birren's speaking with Bob Speck on

several occasions about the debt's being overdue.   In

November 1987, Speck acknowledged that money was still owed under

the 1985 and 1986 agreements and stated his intent to pay the

remaining balance before the end of 1987.   The Raiders sought

collection of the total amounts owed by Speck until at least

December 1987.

     While Birren’s testimony indicated that Speck’s advertisers

had been slow in paying in 1986, Birren did not indicate that

Speck’s advertisers did not or were not going to pay.    Birren

also stated that DCA had not paid pursuant to its agreement with

Speck.   The subjective opinion of Birren alone that Speck’s debt

was uncollectible is insufficient to prove worthlessness.    See

Fox v. Commissioner, 

, 822 (1968); Newman v.

Commissioner, T.C. Memo. 1982-61.

     On brief, petitioners argue that “The regulations do not

require the filing of a suit for collection as a condition to the

bad debt deduction”, but petitioners ignore the remaining portion
                               -35-

of the pertinent regulation.   Sec. 1.166-2(b), Income Tax Regs.,

provides:

          (b) Legal action not required. Where the
     surrounding circumstances indicate that a debt is
     worthless and uncollectible and that legal action to
     enforce payment would in all probability not result in
     the satisfaction of execution on a judgment, a showing
     of these facts will be sufficient evidence of the
     worthlessness of the debt for purposes of the deduction
     under section 166.

Petitioners did not produce any evidence at trial that would

indicate that, if the Raiders had instituted collection

proceedings, the result would not have been the satisfaction of

execution on the judgment.

     The Raiders continued to do business with Speck until

sometime after 1990.   While the mere continuation of business

with Speck is not determinative of the debt’s worth, it is a

factor to be considered.   See, e.g., Record Wide Distrib., Inc.

v. Commissioner, T.C. Memo. 1981-12, affd. 

 (8th Cir.

1982).

     Petitioners have failed to show any identifiable event that

would have formed the basis for reasonably abandoning any hope of

recovery of $400,000 of the Speck debt in 1986.    Respondent’s

disallowance of the bad debt deductions is sustained.

     To reflect the foregoing and concessions of the parties,

                                           Decisions will be entered

                                      under Rule 155.