Sylvia Osterbauer and Estate of Joseph Osterbauer, Deceased, Sylvia Osterbauer, Personal Representative - Page 6

                                        - 6 -                                         
                         (1)  General rule.--In the case of a taxpayer                
                    other than a corporation--                                        
                              (A)  subsections (a) and (c) shall not                  
                         apply to any nonbusiness debt; and                           
                              (B)  where any nonbusiness debt becomes                 
                         worthless within the taxable year, the loss                  
                         resulting therefrom shall be considered a                    
                         loss from the sale or exchange, during the                   
                         taxable year, of a capital asset held for not                
                         more than 6 months.                                          
                         (2)  Nonbusiness debt defined.--For purposes                 
                    of paragraph (1), the term "nonbusiness debt"                     
                    means a debt other than--                                         
                              (A)  a debt created or acquired (as the                 
                         case may be) in connection with a trade or                   
                         business of the taxpayer; or                                 
                              (B)  a debt the loss from the worthless-                
                         ness of which is incurred in the taxpayer's                  
                         trade or business.                                           
               Under section 166(a)(1), if a debt arose in the course of              
          the taxpayer's trade or business, a loss is deductible against              
          ordinary income in the year in which the debt becomes worthless.            
          Sec. 1.166-9(a), Income Tax Regs.  However, under section                   
          166(d)(1)(B), where a debt is a nonbusiness bad debt, a loss must           
          be treated as a short-term capital loss subject to the limita-              
          tions of section 1211.  Under section 1.166-9, Income Tax Regs.,            
          a payment by a taxpayer in discharge of his or her obligations as           
          a guarantor is treated as a business bad debt if the guaranty is            
          entered into in the course of the taxpayer's trade or business.             
          If, however, the guaranty is entered into as a transaction for              
          profit, but not in the course of the taxpayer's trade or busi-              





Page:  Previous  1  2  3  4  5  6  7  8  9  10  Next

Last modified: May 25, 2011