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same manner as short-term capital losses, and only if the debts
are wholly worthless in the year claimed. Sec. 166(d); sec.
1.166-5(a)(2), Income Tax Regs. Section 166(d)(2) provides
generally that a "nonbusiness debt" means a debt other than a
debt created or acquired in connection with a trade or business
of the taxpayer or a debt the loss from the worthlessness of
which is incurred in the taxpayer's trade or business.
This Court has concluded above that petitioner was not
engaged in a trade or business during 1990. Moreover, the
indebtedness at issue was not incurred in connection with the
activity claimed by petitioners to have been a trade or business
but rather was incurred in connection with rental properties in
Tennessee, the income and expenses from which petitioners
reported on Schedule E of their return. The loans petitioner
made to Ms. Marshall were in connection with properties
petitioner held for the production or collection of income under
section 212 and were not related to or made in connection with a
trade or business activity within the intent and meaning of
section 162(a). Thus, petitioners are precluded from claiming a
business bad debt deduction. Additionally, petitioners failed to
establish that the indebtedness owing by Ms. Marshall became
wholly worthless during 1990 to support a claim for a nonbusiness
bad debt deduction. The record shows that, in Ms. Marshall's
bankruptcy proceeding, which was initially filed under chapter 11
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