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shareholder to his corporation may qualify as a business bad debt
if the shareholder was engaged in the business of promoting,
organizing, financing, and selling corporations. Deely v.
Commissioner, supra at 1092. If a shareholder is only an
investor, the debt will be treated as a nonbusiness bad debt
because the management of one’s investments does not constitute a
trade or business. Id. In Whipple v. Commissioner, 373 U.S.
193, 202-203 (1963), the Supreme Court set forth the following
guidelines for deciding the question:
Devoting one’s time and energies to the affairs of a
corporation is not of itself, and without more, a trade
or business of the person so engaged. Though such
activities may produce income, profit or gain in the
form of dividends or enhancement in the value of an
investment, this return is distinctive to the process
of investing and is generated by the successful
operation of the corporation’s business as
distinguished from the trade or business of the
taxpayer himself. When the only return is that of an
investor, the taxpayer has not satisfied his burden of
demonstrating that he is engaged in a trade or business
since investing is not a trade or business and the
return to the taxpayer, though substantially the
product of his services, legally arises not from his
own trade or business but from that of the corporation.
* * *
If full-time service to one corporation does not
alone amount to a trade or business, which it does not,
it is difficult to understand how the same service to
many corporations would suffice. To be sure, the
presence of more than one corporation might lend
support to a finding that the taxpayer was engaged in a
regular course of promoting corporations for a fee or
commission * * * or for a profit on their sale * * *,
but in such cases there is compensation other than the
normal investor’s return, income received directly for
his own services rather than indirectly through the
corporate enterprise * * *
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