Searcy M. Ferguson, Jr., and Elizabeth L. Ferguson - Page 16

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          of a noncorporate taxpayer resulting from the worthlessness of a            
          nonbusiness debt is treated as a short-term capital loss.  Sec.             
          166(d)(1).                                                                  
               Under certain circumstances, a taxpayer’s payment in                   
          discharge of an agreement to act as guarantor, endorser,                    
          indemnitor or other secondary obligor (hereinafter generally                
          referred to as guarantor) may be either (1) deducted as a                   
          worthless business debt pursuant to section 166(a) or (2)                   
          deducted as a worthless nonbusiness debt pursuant to section                
          166(d) (subject to treatment as a short-term capital loss).14               

               13(...continued)                                                       
                         (A) subsection (a) shall not apply to any                    
                    nonbusiness debt; and                                             
                         (B) where any nonbusiness debt becomes worthless             
                    within the taxable year, the loss resulting therefrom             
                    shall be considered a loss from the sale or exchange,             
                    during the taxable year, of a capital asset held for              
                    not more than 1 year.                                             
                    (2) Nonbusiness Debt Defined.--For purposes of                    
               paragraph (1), the term “nonbusiness debt” means a debt                
               other than--                                                           
                         (A) a debt created or acquired (as the case may              
                    be) in connection with a trade or business of the                 
                    taxpayer; or                                                      
                         (B) a debt the loss from the worthlessness of                
                    which is incurred in the taxpayer’s trade or                      
                    business. * * *                                                   
               14� 1.166-9.  Losses of guarantors, endorsers, and                     
          indemnitors incurred, on agreements made after December 31, 1975,           
          in taxable years beginning after such date.--                               
                                                             (continued...)           





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