Dan E. and Susan J. Martens - Page 3




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          Shop, and, on their 1993 tax return, deducted these loans as a              
          “business loan loss”.                                                       
               In 1994, petitioners paid $10,745 to various creditors of              
          the Stork Shop for ordinary and necessary business expenses that            
          it had incurred.  On their 1994 tax return, petitioners deducted            
          the $10,745 as business expenses relating to the Stork Shop.                
                                       OPINION                                        
          I.   Bad Debt Deduction                                                     
               Section 166 allows a deduction for any debt that becomes               
          worthless during the taxable year and distinguishes between                 
          business and nonbusiness debts.  A business bad debt must be                
          related to the taxpayer’s trade or business.  See sec. 166(d)(2).           
               Respondent concedes that petitioners’ loans to the Stork               
          Shop became worthless in 1993, but we must determine whether                
          those loans related to petitioners’ trade or business.  Although            
          they devoted time and energies to the affairs of the Stork Shop,            
          petitioners earned no income from the corporation.  Cf. Whipple             
          v. Commissioner, 373 U.S. 193, 203 (1963) (stating that someone             
          in a trade or business gets “income received directly for his own           
          services rather than indirectly through the corporate                       
          enterprise”).  Petitioners’ efforts were consistent with those of           
          shareholders or of a dutiful son and daughter-in-law.  See Garner           
          v. Commissioner, 987 F.2d 267, 271 (5th Cir. 1993) (upholding               
          conclusion that shareholder-employee’s motive was to protect his            






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