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OPINION
Respondent determined that the advances and guaranty
payments were capital contributions to JTFJ, entitling
petitioners to a short term capital loss deduction in 1989, and a
short-term capital loss carryover deduction of $3,000 per year in
1991, 1992, and 1994. Petitioners contend that they are entitled
to a section 166 business bad debt deduction of $445,104 in 1991.
In the alternative, petitioners contend that they are entitled to
deduct these payments as section 165 losses, or as section 162(a)
ordinary and necessary business expenses.
I. The Joint Venture
Petitioners contend that they are entitled to an ordinary
deduction because the advances to JTFJ and guaranty payments were
made pursuant to a joint venture. Petitioners further contend
that the entity became worthless in 1991.
A joint venture has been defined as a special combination of
two or more persons, where in some specific venture a profit is
jointly sought without any actual partnership or corporate
designation. See Beck Chem. Equip. Corp. v. Commissioner, 27
T.C. 840, 848 (1957). Whether an entity will be recognized as a
joint venture for tax purposes is determined by reference to the
same principles that govern recognition of a partnership. See
Luna v. Commissioner, 42 T.C. 1067, 1077 (1964) (stating that the
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Last modified: May 25, 2011