Larry M. Levy and Diane Levy - Page 9
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Levy received no compensation for his services to JTFJ and Diane
Levy’s wages were very small in comparison to the amount of the
loans guaranteed. See id. at 98-99 (considering the amount of
salary to be protected in relation to the amount advanced).
Petitioners’ guaranty payments (i.e., $1,000 in 1988, $37,095 in
1989, $53,806 in 1990, $93,725 in 1992, and $13,800 in 1993) were
made with a profit motive, the agreements were legally
enforceable against petitioners, and the guaranties were,
however, made before the obligations became worthless. See sec.
1.166-9(d), Income Tax Regs. The guaranty payments were
worthless when made. Petitioners made only $93,725 of guaranty
payments during the years in issue, all during 1992. Accordingly,
petitioners are not entitled to deduct the guaranty payments in
1991. Petitioners, however, are entitled to deduct $93,725 as a
1992 nonbusiness bad debt.
b. The Advances
To determine whether a payment is a loan or a contribution
to capital, numerous factors are considered. See Dixie Dairies
Corp. v. Commissioner, 74 T.C. 476, 493 (1980); see also Bauer v.
Commissioner, 748 F.2d 1365, 1368 (9th Cir. 1984) (stating that
11 factors are considered), revg. T.C. Memo. 1983-120. No
individual factor is controlling, and the determination of
whether advances are loans or contributions to capital requires
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