Glenn and Marion Peterson - Page 6

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          payment to Agway is held to represent a bad debt, it is a                   
          nonbusiness bad debt deductible only as a short-term capital loss           
          pursuant to section 166(d).  The burden of proof is on                      
          petitioners.  Rule 142(a); Welch v. Helvering, 290 U.S. 111, 114            
          (1933).  That burden is not lessened in a fully stipulated case.            
          Borchers v. Commissioner, 95 T.C. 82, 91 (1990), affd. 943 F.2d             
          22 (8th Cir. 1991).                                                         
               Petitioners rely heavily on Putnam v. Commissioner, 352 U.S.           
          82 (1956), citing it for the proposition that payments by an                
          individual on a guarantee of corporate debt which are not then              
          repaid to the individual because the obligation to repay is                 
          worthless give rise, as a matter of law, to bad debt deductions,            
          pointing to the following:                                                  
                    The familiar rule is that, instanter upon the                     
               payment by the guarantor of the debt, the debtor's                     
               obligation to the creditor becomes an obligation to the                
               guarantor, not a new debt, but, by subrogation, the                    
               result of the shift of the original debt from the                      
               creditor to the guarantor who steps into the creditor's                
               shoes.  Thus, the loss sustained by the guarantor                      
               unable to recover from the debtor is by its very nature                
               a loss from the worthlessness of a debt.  This has been                
               consistently recognized in the administrative and the                  
               judicial construction of the Internal Revenue laws                     
               which, until the decisions of the Courts of Appeals in                 
               conflict with the decision below, have always treated                  
               guarantors' losses as bad debt losses.  * * *  [Id. at                 
               85-86; fn. refs. omitted.]                                             
          This exact argument was raised and rejected in Casco Bank & Trust           
          Co. v. United States, 544 F.2d 528, 533-534 (1st Cir. 1976).                
          First, as the Court of Appeals for the First Circuit pointed out,           





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