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reasonably certain of recovering the principal and a major
portion of the discount. See id. at 495. We are not persuaded
that the loan in the present transaction was speculative.
The Guaderramas argue that Benavidez had insufficient assets
to exercise the option and purchase the property. Insufficient
assets, however, is not the test of a speculative investment for
tax purposes. In Estate of Ratliff v. Commissioner, T.C. Memo.
1995-428, we stated that “mere absence of security is not
sufficient to deem a loan speculative.” In any event, we are not
convinced that Benavidez was unable to exercise the option to
purchase the property. Indeed, Benavidez was approved for a loan
from the SBA in 1996 and was in a financial position where he
could have exercised the option. Guaderrama was apparently aware
of this since Guaderrama’s attorney sent a letter to a bank
expressing interest in selling the property to Benavidez in order
to help Benavidez qualify for a loan. Thus, the evidence in the
record suggests that Benavidez could have exercised the option.
The Guaderramas further argue that Benavidez’ sole source of
funds was dependent on operating the new restaurant successfully,
making the likelihood of repayment speculative. There is no
evidence, however, that Severo’s would not be successfully
operated by Benavidez. As Guaderrama testified, he himself had
studied the transaction and decided that it would be a good
investment. Thus, we find this argument unpersuasive. We also
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