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Any loss on a loan to a closely held corporation is treated as a nonbusiness bad debt....deductible as a short-term capital loss. So he gets to recoup his loss @ $3000/yr*marginal tax rate.

And if the taxpayer files BK with a cap loss carryover, the carryover can be lost in the BK. One of the paybacks for not having to pick up all the forgiven debt as income.

--Peter
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