tax hw2 - Taxation 306 Assignment 2 When a loan is made as a function of a trade or business and that loan ultimately becomes worthless it receives

tax hw2 - Taxation 306 Assignment 2 When a loan is made as...

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Taxation 306 Assignment 2 When a loan is made as a function of a trade or business, and that loan ultimately becomes worthless, it receives business bad debt treatment (and avoids the less favourable non business bad debt treatment). This preferential treatment is common only when a person is in the profession of lending money (or perhaps the buying, promoting, and selling of corporations). Fortunately, in Graves v. Commissioner (87 TCM 1409, T.C. Memo 2004-140), the U.S. Tax Court found that if a taxpayer's dominant motivation is to maintain his employment – even though it is with the same corporation of which he is the lone shareholder – those loans he made to the firm are made in the trade or business of "being an employee." In other words, those loans made by an employee to protect his or her employment qualify for the more favourable business bad debt treatment. On the other hand, structuring the transfer as a loan made to protect Sarah's stock investment will qualify the loan for the less favourable non business bad debt treatment. Transferring the amount
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  • Spring '11
  • Debt, Taxation in the United States, Sarah, bad debt treatment

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