Mr. O was a 25 percent partner in MNOP Partnership, which operated a gift and souvenir shop. He materially participated in the partnership business. Several years ago, Mr. O loaned $10,000 to MNOP in return for a written interest-bearing note. Unfortunately, MNOP went bankrupt before the loan was repaid.

Identify the tax issue or issues suggested by the above situations, and state each issue in the form of a question.