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events that fix the liability have occurred and the amount of the
liability can be determined with reasonable accuracy, its
assumption of liability for G�nther’s bank loans it had
guaranteed should give rise to an immediate deduction. We
disagree. A taxpayer’s assumption of liability for guaranteed
bank debt does not give rise to an immediate deduction, even when
the taxpayer utilizes the accrual method of accounting and even
when there is no right of subrogation or the right of subrogation
is worthless.26 Black Gold Energy Corp. v. Commissioner, 99 T.C.
482 (1992), affd. without published opinion 33 F.3d 62 (10th Cir.
1994). Rather, the event giving rise to a deduction is the
taxpayer’s payment of the liability. Id. at 488.
The record in this case establishes only that Flint assumed
liability for G�nther’s guaranteed bank loans during FYE May 31,
1994. Petitioner introduced no evidence establishing how much,
if any, of the bank loans Flint actually paid during FYE May 31,
1994, after it assumed liability for them. Consequently, we hold
that petitioner has failed to prove it is entitled to a bad debt
deduction equal to the amount of the guaranteed bank loans
assumed during FYE May 31, 1994.
26The assumption of liability also does not create any basis
until the obligation is paid. Sec. 1.166-9(c), Income Tax Regs.
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