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States v. Generes, 405 U.S. 93, 103 (1972); sec. 1.166-5(b),
Income Tax Regs.
Nonbusiness bad debts, on the other hand, may be deducted,
but only if they become entirely worthless during the year
claimed; they are, moreover, to be treated as short-term capital
losses. Sec. 166(d). Generally, a nonbusiness bad debt is a
debt other than a debt (1) created or acquired in the trade or
business of the taxpayer or (2) the loss from the worthlessness
of which is incurred in a trade or business of the taxpayer.
Sec. 166(d)(2).
Whether a debt is characterized as business or nonbusiness
is a question of fact. Sec. 1.166-5(b)(2), Income Tax Regs. The
burden is on petitioner to prove that he was engaged in a trade
or business, and that his worthless loans constituted business,
rather than nonbusiness bad debts. Rule 142(a); United States v.
Generes, supra at 104; Whipple v. Commissioner, 373 U.S. 193, 202
(1963).
Being an employee may constitute a trade or business.
Putoma Corp. v. Commissioner, 66 T.C. 652, 673 (1976), affd. 601
F.2d 734 (5th Cir. 1979). In the instant case, however,
petitioners have failed to offer sufficient evidence to prove
that petitioner was an employee of MACS. Indeed, the evidence in
the record indicates otherwise. The only Federal income tax
return for MACS in the record does not show any compensation to
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