Edwin A. Helwig - Page 12

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               Next, we consider whether the loans to Snacks were business             
          or nonbusiness as they related to K&H.4  Section 166, which                  
          permits deductions for bad debts, distinguishes between business             
          and nonbusiness bad debts.  See sec. 166(d); sec. 1.166-5(b),                
          Income Tax Regs.  A partial or wholly worthless business bad debt            
          may be deducted, whereas only a wholly worthless nonbusiness bad             
          debt is deductible.  See sec. 166.  To qualify as a business bad             
          debt, it must be established that the debt was proximately                   
          related to the conduct of the taxpayer’s trade or business.  See             
          United States v. Generes, 405 U.S. 93, 103 (1972); sec. 1.166-               
          5(b), Income Tax Regs.                                                       
               Whether a debt is proximately related to a trade or business            
          is dependent upon a taxpayer’s dominant motive for lending the               
          money.  See United States v. Generes, supra at 104.  A taxpayer’s            
          dominant motive must be business related, as opposed to                      
          investment related, for a loan to be proximately related to the              
          taxpayer’s trade or business.  See Putoma Corp. v. Commissioner,             
          66 T.C. 652, 673 (1976), affd. 601 F.2d 734 (5th Cir. 1979);                 
          United States v. Generes, supra.                                             
               Petitioner contends that the dominant motivation for the                
          loans was developing business opportunities for K&H by                       

               4  We consider the business versus nonbusiness question next            
          because petitioner, through K&H, seeks to claim losses due to                
          partial worthlessness, a treatment that is not available for                 
          nonbusiness bad debts.  See sec. 166(d)(1)(B).                               

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