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taxpayer against the debtor is then worthless. Sec. 1.166-9(a),
(e)(2), Income Tax Regs. If, however, a taxpayer enters into a
transaction as a guarantor for profit, but not in the course of
trade or business, a payment by the taxpayer in discharge of part
or all of the taxpayer's obligation as a guarantor is treated as
a worthless nonbusiness bad debt at the time of payment if any
right of subrogation held by the taxpayer against the debtor is
then worthless. Sec. 1.166-9(b), (e)(2), Income Tax Regs.
A business bad debt deduction for a payment by the taxpayer
in discharge of part or all of the taxpayer's obligation as a
guarantor is only deductible if the taxpayer establishes:
(1) The taxpayer was engaged in a trade or business at the time
the guaranty was made, and (2) the guaranty was proximately
related to the conduct of that trade or business. Weber v.
Commissioner, T.C. Memo. 1994-341; Smartt v. Commissioner, T.C.
Memo. 1993-65; secs. 1.166-9(a), 1.166-5(b), Income Tax Regs.
Whether the taxpayer is engaged in a trade or business is
factual. United States v. Generes, 405 U.S. 93, 104 (1972); sec.
1.166-5(b), Income Tax Regs.
Whether a guaranty is proximately related to the taxpayer's
trade or business rests on the taxpayer's dominant motive, at the
time of the guaranty, for becoming a guarantor. United States v.
Generes, supra at 104; Harsha v. United States, 590 F.2d 884, 886
(10th Cir. 1979). The taxpayer's dominant motive must be
business related, as opposed to investment related, for the
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