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The character of a bad debt loss is determined by the relationship it bears to the taxpayer's trade or business. A debt will only qualify as a business bad debt if it bears a direct relationship to the taxpayer's trade or business (Hogue v. Commissioner, 459 F.2d 932, 939, fn. 11 (C.A. 10, 1972), affirming a Memorandum Opinion of this Court; Estate of Martha M. Byers, 57 T.C. 568, 577 (1972); Oddee Smith, 55 T.C. 260, 268 (1970), vacated and remanded per curiam 457 F.2d 797 (C.A. 5, 1972), opinion on remand 60 T.C. 316 (1973)), and such relationship is a proximate one. I. Hal Millsap, Jr., 46 T.C. 751, 754, fn. 3 (1966), affd. 387 F.2d 420 (C.A. 8, 1968); Stratmore v. United States, 420 F.2d 461 (C.A. 3, 1970); sec. 1.166-5(b), Income Tax Regs.


It is clear that being an employee may constitute a trade or business for the purposes of section 166. Trent v. Commissioner, 291 F.2d 669 (C.A. 2, 1961); cf. David J. Primuth, 54 T.C. 374 (1970). Being an investor in a corporation does not constitute a trade or business, and losses resulting from guarantees made to protect a ...

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