- 22 -
related. We turn, therefore, to an examination of whether
petitioner’s involvement with Adult Living Centers qualified as a
trade or business within the meaning of either section 166 or
162.
In Whipple v. Commissioner, 373 U.S. 193 (1963), the Supreme
Court held that the taxpayer's advances to one of a number of
corporations he owned did not result in business bad debts,
because the advances were not sufficiently related to the
taxpayer's trade or business (as opposed to the trade or business
of the taxpayer's corporation). In Whipple v. Commissioner,
supra at 202, the Supreme Court stated:
Devoting one's time and energies to the affairs of
a corporation is not of itself, and without more, a
trade or business of the person so engaged. Though
such activities may produce income, profit or gain in
the form of dividends or enhancement in the value of an
investment, this return is distinctive to the process
of investing and is generated by the successful
operation of the corporation’s business as
distinguished from the trade or business of the
taxpayer himself. When the only return is that of an
investor, the taxpayer has not satisfied his burden of
demonstrating that he is engaged in a trade or business
since investing is not a trade or business and the
return to the taxpayer, though substantially the
product of his services, legally arises not from his
own trade or business but from that of the corporation.
Even if the taxpayer demonstrates an independent trade
or business of his own, care must be taken to
distinguish bad debt losses arising from his own
business and those actually arising from activities
peculiar to an investor concerned with, and
participating in, the conduct of the corporate
business.
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