bad debt

[theresa d]

disagree

the shareholder has basis in the note equal to the face value of the note. he was the sole shareholder in the corp. there was no debt in the corp so his stock basis, which was equal to the retained earnings and paid in capital, is equal to the assets which were cash and the note. he received a liquidating dividend of the cash and note. the note is now bad. therefore i think he has a loss on the remining balance of the note.

i'm just not sure if it is a business loss or a capital loss limited to the 3000\year- i appreciate all the imput. anyone else have any futher thoughts?

[Bees Knees]

The question is whether it is a business bad debt or a non business bad debt. The debt did not become bad due to business operations. It was due to the shareholder's investment in the business. No different than a stock going bad.

It is a non business bad debt, subject to the $3,000 per year loss limitation.