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the amount of the deduction under section 166(a) for any business
bad debt is the adjusted basis provided in section 1011 for
determining the loss from the sale or other disposition of
property. See sec. 166(b). As pertinent here, section 1011(a)
provides that the adjusted basis for determining the gain or loss
from the sale or other disposition of property is the basis
determined under section 1012, adjusted as provided in section
1016, and section 1012 provides that the basis of property is its
cost.
We turn first to a determination of whether the Miller loan
constitutes a business debt for purposes of section 166. That
determination requires a factual inquiry. See sec. 1.166-5(b),
Income Tax Regs. As we understand his position, petitioner
contends that the Miller loan constitutes a business debt for
purposes of section 166 because he made that loan during 1986
(1) generally as part of his investment business and/or
(2) specifically as part of his investment business of making
loans.
Based on our examination of the entire record before us, we
10(...continued)
loss resulting therefrom is to be considered a loss from the sale
or exchange during the taxable year of a capital asset held for
not more than one year. See sec. 166(d)(1)(B). Sec. 166(d)(2)
defines a nonbusiness debt to mean a debt other than (1) a debt
created or acquired (as the case may be) in connection with a
trade or business of the taxpayer or (2) a debt, the loss from
the worthlessness of which is incurred in the taxpayer’s trade or
business.
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