- 21 - Regs. Whether a taxpayer is engaged in a trade or business is a question of fact. United States v. Generes, 405 U.S. 93, 104 (1972); sec. 1.166-5(b), Income Tax Regs. To obtain a business bad-debt deduction, the taxpayer must establish that (1) he was engaged in a trade or business, and (2) the acquisition or worthlessness of the debt was proximately related to the conduct of such trade or business. Putoma Corp. v. Commissioner, 66 T.C. 652 (1976), affd. 601 F.2d 734 (5th Cir. 1979); sec. 1.166-5(b), Income Tax Regs. Whether a particular guaranty is proximately related to the taxpayer's trade or business depends upon the taxpayer's dominant motivation for becoming a guarantor. United States v. Generes, supra at 104; Harsha v. United States, 590 F.2d 884 (10th Cir. 1979); French v. United States, 487 F.2d 1246 (1st Cir. 1973); Stoody v. Commissioner, 66 T.C. 710 (1976), vacated on another issue 67 T.C. 643 (1977); Weber v. Commissioner, T.C. Memo. 1994-307; Smartt v. Commissioner, supra. In determining whether the taxpayer's dominant motivation was to protect his salary or to protect his investment, the Courts have compared the taxpayer's salary, the value of his investment, and other motivating factors at the time he guaranteed the loan. United States v. Generes, supra at 106; Putoma Corp. v. Commissioner, supra at 674 n.32; Schwartz v. Commissioner, T.C. Memo. 1995-415; Garner v. Commissioner, T.C.Page: Previous 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Next
Last modified: May 25, 2011