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involving the conduct of a trade or business in which the
taxpayer does not materially participate. Sec.
163(d)(5)(A)(ii)(II).
In the present case, petitioners are not entitled to deduct
the $5,016 in interest. Petitioner Brody is in the trade or
business of being an employee of KOA and not of lending money.
Accordingly, the interest paid by petitioners on the loan from
Franklin National Bank constitutes personal interest and,
consonant with section 163(h)(2)(A), may not be deducted by
petitioners. Nor may petitioners deduct the interest paid as
investment interest under section 163(d), because petitioners
materially participated in KOA.
We sustain respondent’s determination that petitioners are
not entitled to the claimed deductions on his Schedule C.
Loss Under Section 1244
An individual taxpayer may claim a limited ordinary loss
deduction for a loss sustained on the sale, exchange, or
worthlessness of section 1244 stock. Sec. 1244(a). Respondent
contends that petitioners’ stock in KOA did not constitute
section 1244 stock because, among other things, KOA did not
satisfy the “gross receipts” test under section 1244(c)(1)(C).
We need not address respondent’s contention because the record
does not indicate any loss was sustained in 1999 regarding stock
of KOA. Petitioners did not file a Form 4797, Sales of Business
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