Robert A. Read - Page 9

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          the year claimed by petitioner; and (2) petitioner, as guarantor,           
          did not pay the Security note in the year claimed by petitioner,            
          and therefore petitioner is not entitled to a bad debt deduction            
          in 1986.  Because we find that the issue of worthlessness is                
          determinative of petitioner's right to a bad debt deduction in              
          the instant case, we shall address that issue first.                        
               Section 166(a) provides that a taxpayer may deduct any debt            
          that becomes wholly or partially worthless within the taxable               
          year.  Under section 166, worthless business bad debts are fully            
          deductible from ordinary income.  The parties do not dispute the            
          existence of a bona fide debt between VIP and Security; the                 
          parties do dispute whether petitioner “paid” VIP's debt as                  
          guarantor, and, if so, whether petitioner incurred a debt that              
          became worthless during the 1986 taxable year.3                             
               Petitioner bears the burden of proving that the debt became            
          worthless in the year in which it was claimed, that such                    
          worthlessness resulted in a NOL, and that the NOL is eligible to            
          be carried back to the 1984 taxable year.  Rule 142(a).  There is           

          record, under Oklahoma State law petitioner would have an                   
          equitable right of subrogation if he paid the VIP note in his               
          capacity as guarantor.  Moore v. White, 603 P.2d 1119 (Okla.                
               3  Additionally, if we find that petitioner did pay VIP's              
          debt as guarantor and that the debt became worthless in 1986,               
          respondent argues that such loss is a nonbusiness bad debt, and             
          therefore the loss is a short-term capital loss which does not              
          give rise to a NOL carryback.  See sec. 166(d)(1)(B).                       

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