15
Putoma Corp. v. Commissioner, 66 T.C. 652, 673 (1976), affd. 601
F.2d 734 (5th Cir. 1979); secs. 1.166-9(a), 1.166-5(b), Income
Tax Regs. Whether the taxpayer is engaged in a trade or business
is a question of fact. United States v. Generes, 405 U.S. 93,
104 (1972); sec. 1.166-5(b), Income Tax Regs.
2. Petitioner's Dominant Motive for Guaranteeing
Northeast's Line of Credit
a. Background and the Parties' Contentions
Whether a guaranty is proximately related to the taxpayer's
trade or business depends on the taxpayer's dominant motive for
becoming a guarantor when he or she made the guaranty. United
States v. Generes, supra at 104; Harsha v. United States, 590
F.2d 884, 886-887 (10th Cir. 1979). When a guarantor of a
corporate debt is a shareholder and employee of the corporation,
mixed motives for the guaranty are usually present; the critical
fact is which motive is dominant. United States v. Generes,
supra at 100. A motive is related to a trade or business when
the guarantor aims to increase or protect his or her salary from
the trade or business. A motive is related to an investment when
the guarantor aims to increase or protect the value of his or her
stock in the debtor corporation. Whipple v. Commissioner, 373
U.S. 193, 202 (1963). Petitioner has the burden of proving that
his dominant motive in signing the guaranty was business related
rather than investment related. United States v. Generes, supra
at 103; Estate of Mann v. United States, 731 F.2d 267, 273 n.8
(5th Cir. 1984); Miles Prod. Co. v. Commissioner, 457 F.2d 1150,
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 NextLast modified: May 25, 2011