Glenn and Marion Peterson - Page 10

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             Memo. 1995-267, Slater v. Commissioner, T.C. Memo. 1989-35, and                                      
             Atkinson v. Commissioner, T.C. Memo. 1984-378.  In those cases,                                      
             the taxpayers were shareholders of closely held corporations.                                        
             They had signed guarantees on behalf of their corporations, upon                                     
             which they had to make payment when their businesses failed.  In                                     
             each case, we found that the payments were the equivalent of                                         
             contributions to capital.                                                                            
                    In sum, the facts surrounding Glenn Peterson's guarantee of                                   
             Dutchess' debt do not show that he intended to create a bona fide                                    
             debtor-creditor relationship between himself and Dutchess, and do                                    
             not reflect a reasonable expectation of repayment on his part,                                       
             but rather show that the payment on the guarantee was a                                              
             contribution to capital.  Calumet Industries, Inc. v.                                                
             Commissioner, supra at 286.  Thus, we sustain the disallowance by                                    
             respondent of petitioners' bad debt deduction in the amount of                                       
             $250,000.  Petitioners are entitled, as respondent concedes, to a                                    
             capital loss in the amount of $205,522.72, subject to the                                            
             limitations of section 1211.                                                                         
                    Our conclusion moots the question whether, had we found that                                  
             the guarantee and its payment gave rise to a bona fide                                               
             indebtedness and did not constitute a contribution to capital,                                       
             the bad debt would have been a business rather than a nonbusiness                                    
             bad debt.  We append the following comments on that issue only                                       
             because petitioners have devoted so much attention to it.                                            





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