- 22 -
OPINION
Section 166(a) allows as a deduction any debt which becomes
worthless within the taxable year. However, section 166(a) is
not applicable to any nonbusiness debt, and, where any
nonbusiness debt becomes worthless within the taxable year, the
loss resulting therefrom shall be considered a loss from the sale
or exchange of a capital asset held for not more than 1 year.
Sec. 166(d)(1). A nonbusiness debt means 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. Sec. 166(d)(2). Business bad debts generally
include payments of principal or interest made by a taxpayer in
discharge of part or all of his obligation under a guaranty
agreement entered into in the course of a trade or business of
the taxpayer. Sec. 1.166-9(a), Income Tax Regs. The burden is
on the taxpayer to show his entitlement to a business bad debt
deduction.18 Rule 142(a); Litwin v. United States, 983 F.2d 997,
17(...continued)
and a net operating loss of $249,149 for 1993 (for which he is
entitled to net operating loss carryback deductions in 1990,
1991, and/or 1992, or to net operating loss carryforward
deductions for years subsequent to 1993).
18Petitioners do not argue the applicability of sec.
7491(a), and the record does not otherwise show whether the
examination was commenced after the effective date of that Code
section. We find sec. 7491(a) is not applicable to this case.
Page: Previous 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 NextLast modified: May 25, 2011