Salvador A. and Kathleen M. Gaudiano - Page 14

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          executed two personal guaranty agreements that covered the debt             
          Four A owed to Appolo.  In 1993, Four A declared bankruptcy, and            
          Appolo wrote off the Four A debt and claimed a bad debt deduction           
          under section 166.  As a result, on their respective 1993 Federal           
          income tax returns, G. Asher and L. Asher each reported ordinary            
          losses of $80,246 as their distributive share of Appolo's bad               
          debt deduction.                                                             
               In the answer, respondent, for the first time, disallowed              
          these ordinary losses and asserted increased deficiencies in the            
          income taxes of G. Asher and L. Asher.  When a new matter is                
          pleaded in the answer, the burden of proof for that issue is on             
          respondent.  Rule 142(a).                                                   
               If Appolo is entitled to a bad debt deduction, then G. Asher           
          and L. Asher are entitled to ordinary losses related to their               
          distributive shares of the deduction.  Respondent argues that               
          Appolo is not entitled to a bad debt deduction under section 166            
          for the Four A debt because the Four A shareholders signed                  
          personal guaranties and had the financial ability to repay the              
          Four A debt; therefore, the debt was not worthless as required              
          under section 166.  G. Asher and L. Asher argue that the                    
          guaranties were not supported by adequate and sufficient                    
          consideration and are not enforceable; therefore, the debt is               
          worthless, and Appolo is entitled to a bad debt deduction.                  







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