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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.
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