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 Johns personal residence. Although Maze was listed as a co-borrower, John repaid the loan in full in 2017. On Mazes 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.