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) The loans provide a nonbusiness bad debt deduction to George in the current year.
C) The loans provide George with a business bad debt deduction.
D) George may claim an ordinary loss as to the worthless loans.
E) None of these.

Question

Quizplus · Accepted Answer

Nonbusiness bad debts, such as loans made by a shareholder to a corporation in which they are not employed, are treated as short-term capital losses when they become wholly worthless. George's situation falls under this category, allowing him a nonbusiness bad debt deduction.

George (An 80% Shareholder) Has Made Loans to Mountainview Corporation