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 John’s personal residence. Although Maze was listed as a co-borrower, John repaid the loan in full in 2017. On Maze’s 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. v. Generes, 405 U.S. 93 (1972).
Dale H. Sundby, 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.