- 8 - debt other than a debt (1) created or acquired in the trade or business of the taxpayer or (2) the loss from the worthlessness of which is incurred in a trade or business of the taxpayer. Sec. 166(d)(2). The question whether a debt is a nonbusiness bad debt is a question of fact. Sec. 1.166-5(b), Income Tax Regs. Petitioner has the burden of showing that he was engaged in a trade or business to which the debts in question are proximately related. Spillers v. Commissioner, 407 F.2d 530, 534 (5th Cir. 1969), affg. T.C. Memo. 1967-216; United States v. Byck, 325 F.2d 551, 552 (5th Cir. 1963); Deely v. Commissioner, 73 T.C. 1081, 1092 (1980). The question of whether a shareholder’s loans to his corporation are business or nonbusiness bad debts frequently has been litigated. A worthless debt resulting from a loan by a 2(...continued) 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 1 year. (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 worthlessness of which is incurred in the taxpayer’s trade or business.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011