Searcy M. Ferguson, Jr., and Elizabeth L. Ferguson - Page 18

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          worthless.  Sec. 1.166-9(d), Income Tax Regs.  Furthermore, such            
          a payment may be treated as a worthless debt only if the taxpayer           
          demonstrates that reasonable consideration was received in return           
          for the assumption of the secondary liability.                              
               We understand petitioners’ contention to be that                       
          petitioner’s payment of the underlying liability to Union Bank in           
          discharge of petitioner’s obligation as a guarantor may be                  
          treated as a worthless debt and that petitioners may deduct the             
          payment pursuant to section 166(a) or (d).  However, petitioners            
          have made no contentions and offered no evidence that petitioner            
          entered into an agreement to act as a guarantor in exchange for             
          reasonable consideration, that petitioner entered into such an              
          agreement in the course of his trade or business or a transaction           
          for profit, that petitioner had an enforceable legal duty to make           
          the payment, or that petitioner entered into such an agreement              
          before the obligation became worthless.  Accordingly, we conclude           
          that petitioners have failed to demonstrate that petitioner’s               
          payment of the underlying liability to Union Bank constitutes a             
          worthless debt for purposes of section 166.  Consequently, we               
          hold that petitioners are not entitled to deduct the payments as            
          either a worthless business debt pursuant to section 166(a) or as           
          a worthless nonbusiness debt pursuant to section 166(d).                    









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