Stephen F. Scofield and Nancy E. Scofield - Page 17

          doing for Northeast.  Petitioner did not show why his guaranty of           
          Northeast's line of credit enhanced his ability to earn a salary.           
          Northeast paid him no salary, and petitioner did not show why               
          Sigma could or would pay him a salary because of his guaranty.              
          Sigma was sometimes a customer of Northeast, but the record does            
          not show that Sigma depended on Northeast to the extent that                
          Sigma should expend funds to ensure that Northeast survived.                
               Petitioners argue that it would not have been reasonable for           
          petitioner to guarantee a $1.2 million line of credit to protect            
          a $4,000 cash investment.  Petitioner cites three cases in which            
          courts have held that the dominant motive of a taxpayer who                 
          personally guaranteed a loan to a company that far exceeded his             
          investment in the company was not to protect his investment:                
          Litwin v. United States, 983 F.2d 997 (10th Cir. 1993); Smith v.            
          Commissioner, T.C. Memo. 1994-640; Estate of Allen v.                       
          Commissioner, T.C. Memo. 1982-303.  Petitioners' reliance on                
          those cases is misplaced.  Petitioner thought his interest in               
          Northeast was worth $1 million when he signed the guarantee,                
          which was almost as much as the line of credit he coguaranteed              
          with McKee.  He was drawing no salary from Northeast.  We believe           
          he guaranteed the line of credit to protect his investment in               
          Northeast, not to protect his job or salary.                                
               Petitioners argue that petitioner made the settlement                  
          payment to reestablish his reputation in the paper and printing             
          industry so that he could continue to earn money from it.                   

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