Lee D. Froehlich - Page 21

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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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