In addition to being an employee of Rock Hard Roofing Material, Lou owns 10% of the companys
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In addition to being an employee of Rock Hard Roofing Material, Lou owns 10% of the company’s common stock. Rock Hard falls on hard times in 2010. To forestall bankruptcy, Rock Hard’s employees and shareholders lend the company $1,000,000. Lou’s share of the total loan is $50,000—$25,000 related to her position as an employee and $25,000 related to her ownership of stock. In early 2011, creditors force Rock Hard into bankruptcy. Lou loses her entire $50,000. a. Is Lou’s loss related to a trade or business or an investment? b. Can Lou deduct her loss as a bad debt expense?
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a Lous loan to the company to protect her job is considered a business debt T...View the full answer
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