- 7 -
Respondent concedes that petitioner’s loans were bona fide
debts that arose in the course of his trade or business of being
an employee of KPS. The parties stipulated that petitioner made
the loans to maintain his employment with KPS. The loans became
worthless during 1996 because of the bankruptcy of KPS. Finally,
petitioner was not in the trade or business of lending money;
rather, he was in the trade or business of operating a trucking
company.
In the notice of deficiency, respondent allowed $85,009 as a
bad debt deduction. However, petitioner is now claiming $86,040
for the bad debt deduction.6 The remaining question is whether
the bad debt should be allowed as a deduction from gross income
to arrive at petitioners’ adjusted gross income, or is to be
treated as an itemized deduction in computing their taxable
income.7
6The discrepancy between $85,009 and $86,040 will be
addressed later in the opinion.
7 The significance of the parties’ dispute lies in the fact
that itemized deductions are limited by certain thresholds and
restrictions, whereas deductions used to arrive at adjusted gross
income are not. In particular, an itemized deduction in the
setting of this case would be subject to the 2-percent floor
under sec. 67.
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