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(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
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