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For the 1991 taxable year, petitioners claimed an NOL carryover
from 1990 in the amount of $22,056. Although petitioners
prepared tax returns for the bankruptcy estate for the 1989 and
1990 taxable years, they were not filed as of the time
petitioners filed the petition in this case.
OPINION
The first issue is whether petitioner's $450,000 payment as
a guarantor of the note is deductible as an ordinary loss under
section 162 or under section 165(e).
Petitioner contends that the amount in question is
deductible under section 162 or, alternatively, under section
165(e). Petitioner alleges that Wheeler stole from PEC by
misappropriating funds from PEC. Petitioner argues that those
losses resulted in PEC's inability to make payments due under the
note, and, consequently, the bank turned to petitioner to perform
on the note. Petitioner also argues that, because PEC did not
financially exist separately from petitioner, he is entitled to a
theft loss deduction under section 165(e) of the amount paid to
the bank in 1990. Alternatively, petitioner contends that the
payments were made to the bank to protect his business reputation
and therefore are deductible under section 162.
Respondent contends that the amount paid on the guaranty is
a nonbusiness bad debt, which is deductible only as a short-term
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