Douglas V. and Magdalene Merante - Page 9

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            respondent's contention that the transactions were investments                            
            rather than bona fide loans.  Suffice it to say that the weight                           
            of the evidence supports the finding that petitioner and Sheldon                          
            intended a debtor-creditor relationship, rather than an equity                            
                  In order to qualify as a business bad debt, the debt must                           
            have been created or acquired in connection with a trade or                               
            business of the taxpayer (section 166(d)(2)(A)), or the loss must                         
            have been incurred in petitioner's trade or business (section                             
            166(d)(2)(B)).  Petitioner must demonstrate that the loss                                 
            resulting from the worthlessness of the debt bears a "proximate                           
            relationship" to a trade or business in which he was engaged.                             
            This is a question of fact.  Sec. 1.166-5(b), Income Tax Regs.                            
            The test for determining whether a particular debt bears a                                
            "proximate relationship" to the taxpayer's trade or business was                          
            set forth by the Supreme Court as follows:                                                
                  in determining whether a bad debt has a "proximate"                                 
                  relation to the taxpayer's trade or business, as the                                
                  Regulations specify, and thus qualifies as a business                               
                  bad debt, the proper measure is that of dominant                                    
                  motivation, and that only significant motivation is not                             
                  sufficient.  * * * [United States v. Generes, 405 U.S.                              
                  93, 103 (1972)].                                                                    
                  If the interest of the lender is predominantly that of an                           
            investor, the debt will be characterized as a nonbusiness bad                             
            debt, because management of one's own investments, no matter how                          

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