Graves

MEMORANDUM ***

Kenneth Graves (“Graves”) was the sole shareholder and a salaried employee-manager of KPS Trucking Co., Inc. (“KPS”). When KPS experienced financial difficulties, Graves loaned KPS a total of $86,040 from his personal funds. The loan was never repaid and became worthless when KPS went bankrupt and its debts were fully discharged. The issue before us is whether the Tax Court erred in categorizing Graves’s loss as a business debt incurred in his trade or business of being an employee under I.R.C. §§ 62(a)(1), 63(d)(1), 67, and 166(a).

The Tax Court’s legal categorization was based on its factual finding— taken directly from Graves’s own stipulation — that the loans “were made in [Graves’s] trade or business of being an *603 employee.” This finding was not clearly erroneous: 1 Graves was a salaried employee of KPS and agreed that his purpose in lending KPS $86,040 was to enable him to “maintain his employment with KPS.”

Accordingly, the Tax Court correctly concluded that Graves’s loss must be treated as a business debt incurred in his trade or business of being an employee and that Graves was, therefore, permitted to deduct the $86,040 as an itemized deduction…