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.
Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 NextLast modified: May 25, 2011