James K. Wise and Claudia R. Wise - Page 15

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               One of respondent's grounds for disallowance is that                   
          petitioner has not proven that he made the $53,189 payment.  The            
          evidence presented in this case includes a loan history statement           
          from Weimar Bank.  The $53,189 is reflected as payment made on              
          the Weimar Bank indebtedness.  Furthermore, petitioner presented            
          evidence in the form of a letter, directing payment of a                    
          commission (owed petitioner from a title company in an unrelated            
          real estate sale) in the amount of $53,189 to Weimar Bank.                  
          Moreover, the evidence includes a copy of a check payable to                
          Weimar Bank on behalf of petitioner from Capitol of Texas Title             
          Company--escrow account, in the amount of $53,189.  Accordingly,            
          we find that petitioner did make the $53,189 payment.                       
               Respondent's next argument is that the payment did not give            
          rise to a bad debt deduction because petitioners have not proven            
          that their right to subrogation against Klutts, the other                   
          guarantor, was worthless.  A requirement for a bad debt deduction           
          is that the guarantor must be unable to recover from the debtor.            
          See Putnam v. Commissioner, supra.                                          
               It is unclear that petitioner's payment of part of his                 
          obligation as guarantor on the Weimar Bank indebtedness is                  
          treated as a bad debt becoming worthless in the year of payment.            
          Sec. 1.166-9(a), Income Tax Regs.  However, the $53,189 payment             
          was made as co-guarantor of the Weimar Bank debt.  Accordingly,             
          petitioner has rights against Klutts, his co-guarantor for 50               






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