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deduction (viz., the Galt loan) was in fact made, that that loan
became worthless during 1987, or that legal expenses were in-
curred during that year in the amount claimed in an attempt to
recover the proceeds of that loan.
With respect to the claimed deduction for a business bad
debt, under section 166(a), a deduction is allowed for a business
bad debt for the year during which it becomes worthless. If the
debt is a nonbusiness debt, section 166(d)(1) provides that the
loss from the worthlessness of the debt is to be treated as a
short-term capital loss. Since the parties agree that the Galt
loan was made and that it became worthless during 1987, the only
issue concerning its deductibility is whether it was a business
bad debt for which a deduction is allowed or a nonbusiness bad
debt which is to be treated as a short-term capital loss. On the
present record, we find that neither the characterization of the
Galt loan as a business debt nor the deduction of that debt when
it became worthless was frivolous, fraudulent, or phony. See
Bokum v. Commissioner, 94 T.C. at 142.
Although the parties stipulated that Mr. Morris was not in
the business of lending money during 1987, a person does not have
to be in that business in order for a debt to be considered a
business debt. A debt is considered a business debt if it was
created or acquired in connection with a trade or business of the
taxpayer or if the loss from its worthlessness is incurred in a
trade or business. Sec. 166(d)(2). A debt is considered a
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