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Memo. 1991-569, affd. 987 F.2d 267 (5th Cir. 1993).5 Also, we
may examine how the taxpayer would have benefited from the loan
or guarantee had the loan not gone bad. Tennessee Sec., Inc. v.
Commissioner, 674 F.2d 570, 574 (6th Cir. 1982), affg. T.C. Memo.
1978-434. Finally, in determining the taxpayer's dominant
motivation, objective facts take precedence over unsupported
statements of subjective intent. Kelson v. United States, 503
F.2d 1291 (10th Cir. 1974).
When a guarantor of a corporate debt is a shareholder and
also an employee, mixed motives for the guaranty are often
present, and the critical issue becomes which motive is dominant.
United States v. Generes, supra at 100. "[I]nvesting is not a
trade or business". Whipple v. Commissioner, 373 U.S. 193, 202
(1963). An employee's motive for guaranteeing a loan may be to
5 The Court of Appeals for the Fifth Circuit stated:
Generes and its progeny have established objective
criteria to aid courts in their search [for dominant
motive]. Our investigation centers around three
factors: the size of the taxpayer's investment, the
size of his after-tax salary, and the other sources of
gross income available to the taxpayer at the time of
the guarantees. [Garner v. Commissioner, 987 F.2d 267,
270 (5th Cir. 1993); affg. T.C. Memo. 1991-569;
citation omitted.]
The Court of Appeals for the Ninth Circuit stated generally
that Generes stood for the proposition that the proper
characterization of a worthless debt as "business" or
"nonbusiness" was a question of fact to be established by the
individual circumstances of each case. Hunsaker v. Commissioner,
615 F.2d 1253, 1256 nn.3 & 4 (9th Cir. 1980).
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