1. George (an 80% shareholder) has made loans to Mountainview Corporation that b
ID: 2611687 • Letter: 1
Question
1. George (an 80% shareholder) has made loans to Mountainview Corporation that become worthless in the current year. George is not employed by Mountainview.
a.George is not permitted a deduction for the worthless loans.
b.George may claim an ordinary loss as to the worthless loans.
c.The loans provide a nonbusiness bad debt deduction to George in the current year.
d.The loans provide George with a business bad debt deduction.
e.None of these choices are correct.
Please provide an explanation of why it would be a business or nonbusiness bad debt (if answer is c or is d). Thank you.
Explanation / Answer
Solution: Option(c) is correct.
Explanation: George has a non-business bad debt result because he lends the money to the Corporation in his capacity as an investor. Non-business bad debts are classified as short-term capital losses (not an ordinary loss as in option 'b' )
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