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Petitioner reported the income or loss connected with Cinevision
as passive income or loss on his 1987 through 1989 returns.
On his 1989 Federal income tax return, petitioner claimed a
business bad debt deduction with respect to his loans to Color
Trick in the amount of $269,129. Petitioner’s Federal income tax
returns for taxable years 1987 through 1990 contain no other
reference to any lending activity of petitioner.
OPINION
The first issue we consider is whether petitioner is
entitled to a business bad debt deduction pursuant to section
166(a)(1) for the worthlessness1 of petitioner’s loans and
advances to Color Trick. That section provides, in general, for
the deduction of debts that become wholly worthless during a
taxable year. Section 166(d), however, limits the general rule,
providing that, in the case of a taxpayer other than a
corporation, nonbusiness bad debts are to be treated as short-
term capital losses.2 In general, a nonbusiness bad debt is a
1
Respondent does not contest the fact that petitioner's loans
to Color Trick became worthless during 1989.
2
Sec. 166(d) provides:
SEC. 166(d). Nonbusiness debts.--
(1) General rule.--In the case of a taxpayer other than a
corporation--
(A) subsection (a) shall not apply to any
(continued...)
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