Madeline Cook - Page 4

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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.                   
               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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