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and MBG. On November 5, 1987, VIP obtained a default judgement
against M&G and MBG in the amount of $709,660 plus interest. On
January 9, 1989, VIP filed an affidavit of judgment in the case.
The record, however, is devoid of any evidence regarding the
financial condition of either M&G or MBG. There was no evidence
that those entities were insolvent or without assets from which
to collect at any time, much less in 1986, the claimed loss year.
OPINION
The issue is whether petitioner is entitled to a NOL
carryback from 1986 to 1984. The answer to this question depends
upon whether petitioner is entitled to a business bad debt
deduction in 1986 under section 166(a). That bad debt deduction
stems from petitioner's alleged payment of the Security note that
he guaranteed. Petitioner claims that he paid the Security note
in 1986 and therefore is entitled to a business bad debt
deduction in 1986. Petitioner contends, and respondent concedes,
that if petitioner is entitled to a business bad debt deduction
in 1986, then he is entitled to carryback the resulting NOL
pursuant to section 172 to the taxable year 1984, the year in
issue. Respondent disallowed petitioner's bad debt deduction and
argues that (1) any debt which may have been owed by VIP to
petitioner, due to petitioner's right of subrogation arising from
his guarantee of the Security note,2 did not become worthless in
2 Although not explicitly stated in any documents in the
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