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From 1991 through 1994, petitioner made a total of 19 loans
to Hamilton, which were personally guaranteed by petitioner’s
son, totaling $120,800. Neither Hamilton nor petitioner's son
made any payments on these loans. Hamilton performed miserably
and ceased doing business in 1994. Petitioner's son failed to
meet his obligations under the Kaplan loan, and by 1994, Kaplan
attached approximately $96,000 of the Puro income stream.
Discussion
Section 166(a)(1) provides, in general, for the deduction of
debts that become wholly worthless during a taxable year.
Section 166, however, distinguishes between business bad debts
and nonbusiness bad debts. See sec. 166(d); sec. 1.166-5(b),
Income Tax Regs. Business bad debts may be deducted against
ordinary income if they become wholly or partially worthless
during the year (in the case of the latter, to the extent charged
off during the taxable year as partially worthless debts). See
sec. 1.166-3, Income Tax Regs. To qualify for the business bad
debt deduction, the taxpayer must establish 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);
Whipple v. Commissioner, 373 U.S. 193, 201 (1963); sec. 1.166-
5(b), Income Tax Regs. The test for determining whether a
particular debt bears a proximate relationship to the taxpayer's
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