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settle his liability on the Loan for $12,000. Petitioner paid
the $12,000 to the SBA in October 1991 in complete satisfaction
of his liability on the Loan.
In the same month, petitioner paid $5,000 to Fidelity &
Deposit Co. of Maryland (F&D), a company that wrote contract
surety bonds on behalf of EPC, to satisfy his liability to F&D.
On or about December 9, 1982, petitioner had agreed to indemnify
F&D for any surety bonds that it wrote on behalf of EPC, and F&D
had paid $5,000 in 1991 to complete a job which EPC had been
required, but failed, to complete. Petitioner had agreed to
indemnify F&D so that EPC could secure larger jobs. Petitioner
deducted his $5,000 payment to F&D on his 1991 return as a
business bad debt. In the notice of deficiency, respondent
reflected his determination that the payment was deductible as a
nonbusiness bad debt and that petitioner was allowed $3,000 of
this deduction in 1991 and $2,000 in 1992.
EPC had unpaid payroll tax liabilities (reportable on
Form 941, Employer's Quarterly Federal Tax Return) for the fourth
quarter of 1983, the first and fourth quarters of 1984, and the
first quarter of 1985. On July 14, 1986, the Commissioner
assessed against petitioner the trust fund portions of those
liabilities under the authority of section 6672. The assessed
amount equaled $107,006. Eight months later, the Commissioner
assessed against petitioner a trust fund recovery penalty under
the authority of section 6672 with respect to payroll tax
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