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transferring the �823,943,385 into Nihon Intergraph's overdraft
account.
Petitioner argues that under section 1.166-9(a) and (e)(2),
Income Tax Regs., because there was no right of subrogation
expressly stated in the Guaranty Agreement, Intergraph should be
entitled to the claimed bad debt deduction in 1987, the year in
which it made payment under the Guaranty Agreement, regardless of
whether Intergraph's right of reimbursement from Nihon Intergraph
was worthless. We believe petitioner misreads the referred-to
regulations.
Under section 1.166-9(a), Income Tax Regs., the right of a
guarantor to claim a bad debt deduction in the year of payment --
regardless of the solvency or financial status of the original
debtor -- applies only where the guarantor has no right of
subrogation against, and no right of reimbursement from, the
original debtor.
Section 1.166-9(a), (d), and (e)(2), Income Tax Regs.,
properly read, stands for the proposition that where a guarantor
does have rights of subrogation and reimbursement from the
original debtor (regardless of whether or not these rights are
expressly stated in the guaranty agreement), the provisions of
section 1.166-9(e)(2), Income Tax Regs., apply, and the guarantor
is not entitled to a bad debt deduction until the rights of
subrogation and reimbursement are shown to be worthless. See
Howell v. Commissioner, 69 F.2d 447, 451 (8th Cir. 1934), affg.
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