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Petitioner also has generated large amounts of personal service
income in years following and including the year of the Loan, and
we do not find that petitioner's guaranty of the Loan was tied to
his receipt of this income. We hold that petitioner's dominant
motive when he guaranteed the Loan was to protect his investment
in EPC, and, hence, that his deduction with respect thereto is
attributable to a nonbusiness bad debt.
As to the amount of petitioner's deduction, we find that
petitioner paid the Bank $12,000, and that it foreclosed on his
land that he pledged as security for the Loan. We decline to
allow petitioner any deduction with respect to the land. The
parties have not adequately addressed the tax consequences
surrounding the SBA's foreclosure of the mortgage, and the record
does not contain enough data for us to determine the tax
consequences, including petitioner's deduction (if any), with
respect thereto. See Helvering v. Hammel, 311 U.S. 504 (1941)
(a foreclosure is a "sale" precipitating the recognition of gain
or loss). We are unable to find, for example, the value of the
land at the time of the foreclosure, the amount realized by
petitioner upon the foreclosure, or petitioner's basis in the
land at the time of the foreclosure. Accordingly, we hold that
petitioner's deduction is limited to $12,000.
2. $31,000 Amount
Respondent also determined that petitioner could not deduct
the $31,000 payment that he made to the United States in 1991.
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