- 6 - Virgin, 230 F.2d 880 (5th Cir. 1956). Section 166(d)(1)(A) provides that in the case of a taxpayer other than a corporation, section 166(a) shall not apply to any nonbusiness debt. Section 166(d)(2) defines a nonbusiness debt as “a debt other than--(A) a debt created or acquired * * * in connection with a trade or business of the taxpayer; or (B) a debt the loss from the worthlessness of which is incurred in the taxpayer’s trade or business.” Whether a debt is a business debt or a nonbusiness debt is a question of fact in each particular case. Sec. 1.166-5(b), Income Tax Regs. In this regard, a debt must be proximately related to the taxpayer’s conduct of a trade or business in order to constitute a business debt. United States v. Generes, 405 U.S. 93 (1972); sec. 1.166-5(a)(2), Income Tax Regs. Whether a debt bears a proximate relation to a taxpayer’s trade or business is determined by the dominant motivation of the taxpayer in incurring the debt. United States v. Generes, supra at 103. A significant motivation is not sufficient. Id. If an employee’s dominant motivation in making a loan to his employer is a desire to preserve his position and salary at that company, the loan may be a business loan. See Shinefeld v. Commissioner, 65 T.C. 1092 (1976). However, petitioner here has not demonstrated that the loan was “necessary to keep his job or was otherwise proximately related to maintaining his trade or business as an employee.” Whipple v. Commissioner, 373 U.S. 193, 204 (1963). Petitioner held a salaried position in a separate company, not threatened byPage: Previous 1 2 3 4 5 6 7 Next
Last modified: May 25, 2011