1 George an 80 shareholder has made loans to Mountainview Co

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.

Solution

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\' )