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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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