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ness, the regulation provides that the discharging payment is a
nonbusiness bad debt. Sec. 1.166-9(b), Income Tax Regs.
The question of whether a debt is a business or nonbusiness
bad debt is essentially a question of fact, the resolution of
which depends upon whether the debt is "proximately" related to
the trade or business of the taxpayer. Sec. 1.166-5(b)(2),
Income Tax Regs. In determining whether a bad debt had a
"proximate" relation to the taxpayer's trade or business, the
Supreme Court has stated that the proper measure is the dominant
motivation of the taxpayer in making the loan. United States v.
Generes, 405 U.S. 93, 103 (1972). The taxpayer's motive is
assessed at the time the guaranty was made. Harsha v. United
States, 590 F.2d 884 (10th Cir. 1979).
Petitioner first argues that, had decedent not agreed to
secure a loan for International Mining, the corporation would
have failed, negatively affecting petitioner's and decedent's
business dealings in the community. Petitioner argues that the
dominant motivation in making the loan was to protect the real
estate business. Petitioner offers only her own testimony to
support this argument and offers no facts that suggest that, when
International Mining did fail, any of the real estate business
interests were negatively affected. Petitioner and decedent next
contend that their dominant motivation in lending the money to
International Mining was to protect their "good name" in the
community where they lived. Petitioner and decedent argue that
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Last modified: May 25, 2011