South-Western Federal Taxation 2018: Individual Income Taxes Research Problem Ch

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South-Western Federal Taxation 2018: Individual Income Taxes Research Problem Chapter 7 Deductions and Losses: Certain Business Expenses and Losses During 2017, John was the chief executive officer and a shareholder of Maze, Inc. He owned 60% of the outstanding stock of Maze. In 2014, John and Maze, as co-borrowers, obtained a $100,000 loan from United National Bank. This loan was secured by John’s personal residence. Although Maze was listed as a co-borrower, John repaid the loan in full in 2017. On Maze’s Form 1120 tax returns, no loans from shareholders were reported. Discuss whether John is entitled to a bad debt deduction for the amount of the payment on the loan. Partial list of research aids: U.S. vs Generes, 405 U.S. 93 (1972). Dale H. Sunby T. C.Memo. 2003-204. Arrigoni v. Comm., 73 T.C. 792 (1980). Estate of Herbert M. Rapoport, T.C.Memo. 1982-584. Clifford L. Brody and Barbara J. DeClerk, T.C. Summary Opinion, 2004-149.
South-Western Federal Taxation 2018: Individual Income Taxes Research Problem Chapter 7 Deductions and Losses: Certain Business Expenses and Losses During 2017, John was the chief executive officer and a shareholder of Maze, Inc. He owned 60% of the outstanding stock of Maze. In 2014, John and Maze, as co-borrowers, obtained a $100,000 loan from United National Bank. This loan was secured by John’s personal residence. Although Maze was listed as a co-borrower, John repaid the loan in full in 2017. On Maze’s Form 1120 tax returns, no loans from shareholders were reported. Discuss whether John is entitled to a bad debt deduction for the amount of the payment on the loan. Partial list of research aids: U.S. vs Generes, 405 U.S. 93 (1972). Dale H. Sunby T. C.Memo. 2003-204. Arrigoni v. Comm., 73 T.C. 792 (1980). Estate of Herbert M. Rapoport, T.C.Memo. 1982-584. Clifford L. Brody and Barbara J. DeClerk, T.C. Summary Opinion, 2004-149.
South-Western Federal Taxation 2018: Individual Income Taxes Research Problem Chapter 7 Deductions and Losses: Certain Business Expenses and Losses During 2017, John was the chief executive officer and a shareholder of Maze, Inc. He owned 60% of the outstanding stock of Maze. In 2014, John and Maze, as co-borrowers, obtained a $100,000 loan from United National Bank. This loan was secured by John’s personal residence. Although Maze was listed as a co-borrower, John repaid the loan in full in 2017. On Maze’s Form 1120 tax returns, no loans from shareholders were reported. Discuss whether John is entitled to a bad debt deduction for the amount of the payment on the loan. Partial list of research aids: U.S. vs Generes, 405 U.S. 93 (1972). Dale H. Sunby T. C.Memo. 2003-204. Arrigoni v. Comm., 73 T.C. 792 (1980). Estate of Herbert M. Rapoport, T.C.Memo. 1982-584. Clifford L. Brody and Barbara J. DeClerk, T.C. Summary Opinion, 2004-149.

Explanation / Answer

As per South-western Federal Taxation 2018 : Individual Income Taxes

Since the John was owning 60% of the outstanding stock of Maze and they had co-borrowed the loan which is business loan, the bad debt related to business is eligible for deduction by the indivdual tax payer. Hence in this case John is entitled to a bad debt deduction for the amount of the payment on the loan.

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