Amy owns 20% of the stock of Wren Corporation, which she acquired several years ago at a cost of $10,000. Amy is Vice-President of Wren and earns a salary of $80,000 annually. Last year, Wren Corporation was experiencing financial problems, and Amy loaned the corporation $25,000. In the current year, Wren becomes bankrupt, and both her stock investment and the loan become worthless. Amy has a nonbusiness bad debt deduction this year of $25,000.

Question

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Amy's loan to Wren Corporation is considered a business bad debt because she is an employee and officer of the corporation, and the loan was related to her business activities. Business bad debts are deductible as ordinary losses, not as nonbusiness bad debts.

Amy Owns 20% of the Stock of Wren Corporation, Which