William J. Fleischaker and Donni L. Fleischaker - Page 21

                                        - 21 -                                         

          (1980).  To qualify as a business bad debt, the debt must bear a             
          proximate relation to the taxpayer’s trade or business.  See sec.            
          1.166-5(b), Income Tax Regs.; see also United States v. Generes,             
          405 U.S. 93, 103 (1972); Deely v. Commissioner, supra at 1092.               
               Payments made to discharge an obligation as a guarantor                 
          generally are deductible under section 166 as business bad debts             
          if (a) the taxpayer was engaged in a trade or business when he               
          made the guaranty, and (b) the guaranty was proximately related              
          to the conduct of that trade or business.  See Scofield v.                   
          Commissioner, T.C. Memo. 1997-547; Jones v. Commissioner, T.C.               
          Memo. 1997-368; Weber v. Commissioner, T.C. Memo. 1994-341; sec.             
          1.166-9, Income Tax Regs.                                                    
               A taxpayer may deduct ordinary and necessary expenses paid              
          or incurred in carrying on a trade or business.  See sec. 162(a).            
          A taxpayer may deduct legal expenses under section 162 if the                
          origin of the claims with respect to which the expenses were                 
          incurred relates to the trade or business of the taxpayer.  See              
          Woodward v. Commissioner, 397 U.S. 572, 577-578 (1970);                      
          Commissioner v. Tellier, 383 U.S. 687, 689 (1966); United States             
          v. Gilmore, 372 U.S. 39 (1963).                                              
               Although the standards for deductibility under sections 166             
          and 162 are articulated differently, they share at least one                 
          common feature.  Under both sections, a taxpayer must establish              
          that he had a trade or business to which the payment in question             

Page:  Previous  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  28  29  30  Next

Last modified: May 25, 2011