A shareholder lends money to his corporation in his capacity as an investor. If the loans become worthless, a business bad debt results.

Question

Quizplus · Accepted Answer

When a shareholder lends money to their corporation, any loss from the loan becoming worthless is typically treated as a nonbusiness bad debt if the lending was done in the capacity of an investor. Business bad debts are generally those incurred in the ordinary course of a trade or business.

A Shareholder Lends Money to His Corporation in His Capacity