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business consists of the performance of services as an employee,
he may not deduct the business bad debt to arrive at adjusted
gross income under section 62. Accordingly, petitioner’s
business bad debt must be treated as an itemized deduction under
section 63(d).
Because the business bad debt is deductible as an itemized
deduction, it is subject to the 2-percent floor under section 67.
Section 67(a) provides in pertinent part: “In the case of an
individual, the miscellaneous itemized deductions for any taxable
year shall be allowed only to the extent that the aggregate of
such deductions exceeds 2 percent of adjusted gross income.”
Section 67(b) defines miscellaneous itemized deductions as
itemized deductions that are not listed therein. Section 166
business bad debts are not listed under section 67(b).
Therefore, we hold that petitioner’s business bad debt deduction
is a miscellaneous itemized deduction and is subject to the 2-
percent floor under section 67.
Amount of Business Bad Debt
We next consider the amount of petitioner’s business bad
debt deduction.8 The parties disagree on the amount to be
deducted. Petitioners initially deducted $84,734 on their
Federal income tax return. After examination, respondent allowed
8 As previously noted, no question has been raised with
respect to the burden of proof or production under sec. 7491(a).
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Last modified: May 25, 2011