                        T.C. Memo. 1999-44



                      UNITED STATES TAX COURT



         LARRY J. AND ANGELA L. SIGGELKOW, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 2550-97.                  Filed February 10, 1999.



     R. Glen Woods, for petitioners.

     Wendy S. Harris, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     GERBER, Judge:   Respondent determined a deficiency in

petitioners’ 1992 Federal income tax in the amount of $24,993.

The issue for our consideration is whether petitioners are

entitled to take an ordinary loss deduction for a business bad

debt as allowed by section 166.1   Petitioners contend that, in


     1
       Unless otherwise stated, all section references are to the
Internal Revenue Code in effect for the taxable year in issue,
and all Rule references are to the Tax Court Rules of Practice
                                                   (continued...)
                               - 2 -


the ordinary course of Mr. Siggelkow’s business, he made a bona

fide loan to a company he partially owned that became a worthless

business debt in 1992 when the company went out of business.

Respondent disputes that the advance of funds was made in the

course of petitioner's trade or business.

                         FINDINGS OF FACT

     The stipulation of facts and the exhibits attached thereto

are incorporated herein by this reference.

     Petitioners Larry and Angela Siggelkow, husband and wife,

resided in Las Vegas, Nevada, at the time their petition was

filed.   Angela Siggelkow is a petitioner in this case because she

joined in filing returns with Larry Siggelkow.   Subsequent

references to “petitioner” refer only to Larry Siggelkow.

     During the tax year in question, petitioner owned one-third

of the stock in PLG Enterprises, Inc., d.b.a. Eagle Jet Charter,

Inc. (PLG), and all of the stock in Lang Aire, Inc. (Lang), as

well as interests in other aviation-related companies.

     In May 1992, petitioner borrowed $255,000 from Clark County

Credit Union (CCCU) against funds held in his personal accounts

at CCCU.   The CCCU loan agreement specified a 5.75-percent

interest rate with a single balloon payment due in June 1993.

Petitioner instructed the credit union to wire the funds directly

to AIG Aviation Insurance Services, Inc. (AIG), on behalf of PLG

as payment for its successful bid to buy a salvaged Lear jet held


     1
      (...continued)
and Procedure.
                                 - 3 -


by AIG.   The plane, formerly owned by the singer Paul Anka, had

suffered extensive damage after running off a runway and was no

longer certifiable for flight.    PLG took possession of the

salvaged plane, planning to remove the plane’s undamaged engines

to sell to Lang, which owned a plane in need of engines before it

could be sold.   Petitioner did not take the plane or any other

asset of PLG as collateral for the funds he advanced on PLG’s

behalf, failing to file a notice of lien or make a UCC filing in

order to secure his position as a creditor.    Petitioner also

failed to keep any documentation on the alleged loan in his

personal records and was unable to produce documentation

evidencing a loan between petitioner and PLG for the funds

advanced, though he claimed the note was held by another PLG

shareholder, Craig Orrock.    No shareholder loans were reported on

PLG’s 1992 tax return.

     Lang purchased the engines in 1992 from PLG for $163,074.42,

which was sent directly to CCCU in partial repayment of

petitioner’s personal note.    One hundred fifty-five thousand

dollars was applied to principal and $8,074.42 was applied to

interest on the CCCU note.    Thereafter PLG made no payments to

petitioner or on the CCCU note.    Petitioner never made any

attempt to collect those funds he claimed were still owed to him

by PLG.   Subsequently, petitioner paid off the remaining $100,000

CCCU loan balance.

     In the fall of 1992, petitioner entered into negotiations

with Yamagada Enterprises d.b.a. Eagle International Group (Eagle
                                - 4 -


Group) for the purchase of petitioner’s aviation-related

businesses as well as various assets held by petitioner,

petitioner’s wife, petitioner’s companies, and the two other PLG

shareholders, Craig Orrock and William Acor, a close friend of

petitioner’s.   Petitioner and Mr. Acor retained interests in the

new company, Eagle Group, once the sale was completed.   Included

in the businesses bought by Eagle Group were Lang and PLG.    The

sale was negotiated for approximately $5 million.   Petitioner was

to receive $2,410,050, paid in cash and in installments from

Eagle Group with additional periodic payments to petitioner and

Mr. Acor totaling more than $500,000.   Eagle Group also agreed to

assume $637,929.98 in liabilities held by the various companies

sold in the deal.   This did not include the remaining $100,000

petitioner claims PLG owed him.

     Out of the total purchase price, petitioner allotted

$177,500 for the sale of PLG.   The sum was divided so that

$176,500 was for goodwill, and the remaining $1,000 was for the

assets of PLG, including the rest of the salvaged plane.    Those

assets were sold for below fair market value.   PLG never received

the funds; instead, petitioner accepted the payment directly.

Though Eagle Group agreed to assume the notes held by other

businesses sold in the deal, petitioner did not try to convince

Eagle Group to assume the alleged liability owed to petitioner by

PLG for the outstanding $100,000 balance, nor did he structure

the disbursement among his companies so that PLG had enough money

to pay off its creditors, including petitioner.   The liabilities
                               - 5 -


owed to PLG’s outside creditors were paid in full, but no funds

were made available to repay petitioner.

     Petitioner claimed that PLG’s failure to pay him the

remaining money resulted in a bad business debt.    On his 1992 tax

return, he claimed a deduction of $78,271.   He later claimed that

this amount should have been $100,000.   He had claimed the lower

amount on the advice of his tax preparer.    Respondent determined

a $24,993 deficiency by disallowing petitioner’s claimed ordinary

loss for a bad business debt under section 166.    Computational

adjustments were also made due solely to the increase in

petitioner’s adjusted gross income.

                              OPINION

     We must decide whether petitioner is entitled to a business

bad debt deduction for the advances made on PLG's behalf.

Respondent argues that petitioner is not entitled to the

deduction because the advance did not constitute a business loan.

On brief, respondent also argued that the advance was not a bona

fide loan and that it did not become worthless as petitioner

claimed.   However, in the notice of deficiency, respondent

already conceded that the advance was a nonbusiness bad debt,

which petitioner could deduct as a short-term capital loss rather

than as the ordinary loss claimed for 1992, and calculated

petitioner's tax deficiency accordingly.

     In order to maintain an ordinary loss, petitioner must

demonstrate that the loan qualifies for section 166 treatment.

White v. United States, 305 U.S. 281 (1938); United States v.
                                - 6 -


Virgin, 230 F.2d 880 (5th Cir. 1956).   Section 166(d)(1)(A)

provides that in the case of a taxpayer other than a corporation,

section 166(a) shall not apply to any nonbusiness debt.    Section

166(d)(2) defines a nonbusiness debt as “a debt other than--(A) a

debt created or acquired * * * in connection with a trade or

business of the taxpayer; or (B) a debt the loss from the

worthlessness of which is incurred in the taxpayer’s trade or

business.”

   Whether a debt is a business debt or a nonbusiness debt is a

question of fact in each particular case. Sec. 1.166-5(b), Income

Tax Regs.    In this regard, a debt must be proximately related to

the taxpayer’s conduct of a trade or business in order to

constitute a business debt.    United States v. Generes, 405 U.S.

93 (1972); sec. 1.166-5(a)(2), Income Tax Regs.    Whether a debt

bears a proximate relation to a taxpayer’s trade or business is

determined by the dominant motivation of the taxpayer in

incurring the debt.    United States v. Generes, supra at 103.     A

significant motivation is not sufficient.    Id.   If an employee’s

dominant motivation in making a loan to his employer is a desire

to preserve his position and salary at that company, the loan may

be a business loan.   See Shinefeld v. Commissioner, 65 T.C. 1092

(1976).   However, petitioner here has not demonstrated that the

loan was “necessary to keep his job or was otherwise proximately

related to maintaining his trade or business as an employee.”

Whipple v. Commissioner, 373 U.S. 193, 204 (1963).    Petitioner

held a salaried position in a separate company, not threatened by
                                 - 7 -


the failure of PLG, and took no salary for his position with PLG.

See United States v. Generes, supra at 103 (considering the ratio

of salary to debt amount a significant factor to find business

purpose for an employee loan).

     A taxpayer may claim a business loss in situations in which

the taxpayer’s activities in making loans have been regarded as

so extensive and continuous as to elevate that activity to the

status of a separate business.     Rollins v. Commissioner, 32 T.C.

604, 613 (1959), affd. 276 F.2d 368 (4th Cir. 1960); Barish v.

Commissioner, 31 T.C. 1280, 1286 (1959); Estate of Palmer v.

Commissioner, 17 T.C. 702 (1951).    Yet, petitioner presented no

evidence that his activity in that respect was extensive enough

to constitute a separate business.       We also find it significant

that petitioner did not charge enough interest to create any

lender profit margin and maintained no documentation on the

advance he made.

     Having considered the record herein in light of the above

criteria, we conclude that petitioner did not make the advance to

PLG in furtherance of his trade or business; he was not in the

business of lending money, nor did he make the advance in order

to preserve a salary from PLG.    Petitioner is not entitled to a

business bad debt deduction under section 166.

     In light of the foregoing,


                                         Decision will be entered for

                                 respondent.
