Detailed Answer
(c) The requirement is to determine the loss that Cook
can claim as a result of the worthless note receivable in 2013.
Cook’s $1,000 loss will be treated as a nonbusiness bad debt,
deductible as a short-term capital loss. The loss is not a business
bad debt because Cook was not in the business of lending money,
nor was the loan required as a condition of Cook’s employment.
Since Cook owned no stock in Precision, the loss could not be
deemed to be a loss from worthless stock, deductible as a longterm
capital loss.