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owed to PLG’s outside creditors were paid in full, but no funds
were made available to repay petitioner.
Petitioner claimed that PLG’s failure to pay him the
remaining money resulted in a bad business debt. On his 1992 tax
return, he claimed a deduction of $78,271. He later claimed that
this amount should have been $100,000. He had claimed the lower
amount on the advice of his tax preparer. Respondent determined
a $24,993 deficiency by disallowing petitioner’s claimed ordinary
loss for a bad business debt under section 166. Computational
adjustments were also made due solely to the increase in
petitioner’s adjusted gross income.
OPINION
We must decide whether petitioner is entitled to a business
bad debt deduction for the advances made on PLG's behalf.
Respondent argues that petitioner is not entitled to the
deduction because the advance did not constitute a business loan.
On brief, respondent also argued that the advance was not a bona
fide loan and that it did not become worthless as petitioner
claimed. However, in the notice of deficiency, respondent
already conceded that the advance was a nonbusiness bad debt,
which petitioner could deduct as a short-term capital loss rather
than as the ordinary loss claimed for 1992, and calculated
petitioner's tax deficiency accordingly.
In order to maintain an ordinary loss, petitioner must
demonstrate that the loan qualifies for section 166 treatment.
White v. United States, 305 U.S. 281 (1938); United States v.
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