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petitioners are not entitled to a bad debt deduction for merely
making repayment of loan proceeds. Dreyfuss v. Commissioner,
supra; Perry v. Commissioner, 92 T.C. at 479; Estate of Schwehm
v. Commissioner, supra. To the extent petitioner made payment on
behalf of Heger and Wood, petitioners have not met their burden
of proving that the resulting debt owed to them was worthless in
the year at issue. Millsap v. Commissioner, supra. Accordingly,
we sustain respondent's disallowance.
Wood Bad Debt Deduction--$53,189
Petitioners claimed a bad debt deduction in the amount of
$53,189 for payment relating to the Weimar Bank indebtedness.
Respondent makes a number of arguments in support of her
disallowance.
Petitioners' primary argument is that petitioner, as
guarantor, made the payment in the course of his trade or
business, and is, therefore, entitled to a business bad debt
under section 166. To this end, petitioners devote a substantial
part of their brief to making a distinction between business and
nonbusiness bad debts.
Section 166 allows a deduction for the loss suffered on
account of a bad debt. A deduction is allowed to the extent that
the debt became worthless within the taxable year. Sec. 166(a).
A loss sustained by a guarantor unable to recover from the debtor
is a loss from a bad debt. Putnam v. Commissioner, 352 U.S. 82
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