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Schedule C, Profit or Loss From Business, to arrive at their
adjusted gross income.
The loans were made in petitioner’s trade or business of
being an employee and were made to enable him to maintain his
employment with KPS. Although petitioner claimed $84,734 as a
business bad debt on his return, at trial he substantiated loans
to KPS of $86,040.
Petitioners failed to report the following items of income
on their 1996 income tax return:
Income Item Amount
Interest $3,475
State tax refund 105
Taxable pensions 29,835
Computational error 10,000
On their January 9, 2002, notice of deficiency, respondent
allowed $85,009 as a business bad debt deduction and treated it
as an itemized deduction on Schedule A, Itemized Deductions. The
amount respondent allowed is $275 greater than the amount
petitioners claimed on their 1996 return.
OPINION
The issues we consider arise from circumstances under which
petitioner lent his solely owned corporation capital so that it
could continue its operations, including the payment of salaries.
Petitioner was a salaried employee of the corporation and was in
the business of being an employee. The loans became worthless
during the 1996 tax year, and petitioner claimed the loss in
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