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entitled to deduct, under section 162, the business expenses
claimed on Schedule C of their 1990 return. The mortgage
interest and real estate taxes paid in 1990 with respect to
petitioner's activity are deductible on Schedule A of
petitioners' 1990 return, as allowed by respondent in the notice
of deficiency. Respondent is sustained on this issue.6
The next issue is whether petitioners are entitled to a
business bad debt deduction with respect to the loans petitioner
made to Ms. Marshall in connection with the Knoxville, Tennessee,
properties they jointly owned. Respondent determined that the
debt owed to petitioner constituted a nonbusiness bad debt and
that the debt did not become worthless in 1990. In general,
section 166(a) allows a deduction for any debt that becomes
worthless during the taxable year. However, section 166
distinguishes between business bad debts and nonbusiness bad
debts. Sec. 166(d); sec. 1.166-5(b), Income Tax Regs. Business
bad debts may be deducted against ordinary income to the extent
that such debts become wholly or partially worthless during the
year. Nonbusiness bad debts may be deducted, but only in the
6
The Court notes that sec. 195 provides generally that no
deduction shall be allowed for start-up expenditures; however,
such expenses may, at the election of the taxpayer, be treated as
deferred expenses and allowed as a deduction prorated equally
over a period of not less than 60 months as may be selected by
the taxpayer beginning with the month in which the active trade
or business begins. This record does not support a finding that
a trade or business activity by petitioner began during 1990.
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