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(1956); Black Gold Energy Corp. v. Commissioner, 99 T.C. 482, 486
(1992), affd. without published opinion 33 F.2d 62 (10th Cir.
1994). In Putnam the Court explained:
The reality of the situation is that the debt is an asset of
full value in the creditor's hands because backed by the
guaranty. The debtor is usually not able to reimburse the
guarantor and in such cases that value is lost at the
instant that the guarantor pays the creditor. But that this
instant is also the instant when the guarantor acquires the
debt cannot obscure the fact that the debt "becomes"
worthless in his hands. [Id. at 89.]
Furthermore, this Court has interpreted Putnam and held that
"payments in discharge of a guaranty are normally to be treated
as bad debt losses." Martin v. Commissioner, 52 T.C. 140, 144
(1969), affd. 424 F.2d 1368 (9th Cir. 1970). Whether a guarantor
achieves technical subrogation or not, the guarantor's loss
arises by virtue of the worthlessness of the debtor's obligation
to the guarantor. Black Gold Energy Corp. v. Commissioner, supra
at 487.
Losses of guarantors are subject to particular conditions of
deductibility. Id.; sec. 1.166-9, Income Tax Regs. Section
1.166-9(a), Income Tax Regs., provides in relevant part:
Subject to the provisions of paragraphs (c), (d), and (e) of
this section, a payment of principal or interest made during
a taxable year beginning after December 31, 1975, by the
taxpayer in discharge of part or all of the taxpayer's
obligation as a guarantor, endorser, or indemnitor is
treated as a business debt becoming worthless in the taxable
year in which the payment is made * * *.
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