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that the unrecovered portion of the Miller loan and the legal
expenditures that he had paid as of the end of 1993 in connection
with the recovery of that loan principal constitute under section
212(1) and (2) ordinary and necessary expenses paid during 1993
for the production or collection of income or for the management,
conservation, or maintenance of property held for the production
of income.
Section 165 allows a deduction in the case of an individual
for (1) a loss incurred in a trade or business, (2) a loss
incurred in any transaction entered into for profit, even though
not connected with a trade or business, and (3) a loss of prop-
erty not connected with a trade or business or a transaction
entered into for profit if such loss arises from fire, storm,
shipwreck, or other casualty, or from theft. See sec. 165(a),
(c). We have found that petitioner has failed to establish that
he was in the trade or business of either investing generally or
making loans specifically in 1986, when he made the Miller loan,
or in 1993, the year in which he claims that that loan became
worthless. We have also found that petitioner has failed to show
that the $2,641 of unrecovered principal of the Miller loan
became worthless during 1993. In addition, we have found that,
because the interest rate called for by the Miller loan was
deemed to be usurious under California law, petitioner was
entitled to recover only the principal of that loan, and the
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