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Here again, petitioner bears the burden of showing that he
was in a trade or business or an activity entered into for
profit. In order to do that under the circumstances of this
case, he would have to show that he was a joint venturer with Ms.
Jackson and/or her business enterprises or that he entered into
his transaction with Ms. Jackson and/or her entities as part of
an activity entered into for profit.
Section 165(c) permits the deduction of losses "incurred in
a trade or business", sec. 165(c)(1), or "incurred in any
transaction entered into for profit, though not connected with a
trade or business", sec. 165(c)(2). Although paragraphs (1) and
(2) of section 165(c) both deal with losses, one deals with
losses incurred in a trade or business and the other with losses
not connected with a trade or business. In that regard, section
165(c)(1) concerns operating losses of a profit-seeking activity,
and section 165(c)(2) involves a loss due to a nonbusiness
reason, such as abandonment. For a loss to be deductible under
either paragraph (1) or (2) of section 165(c), however, the
taxpayer must be engaged in a trade or business or involved in a
transaction for profit.
Section 166(a)(1) provides for the deduction of any debt
that becomes worthless during the taxable year. Section 166(a)
does not apply to a nonbusiness debt, which is defined in section
166(d)(2) as any debt other than (A) a debt created in connection
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