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payment is compelled, the fact that the guarantor of the
corporate debt is also a shareholder and employee of the
corporation does not preclude the guarantor from a bad debt
deduction so long as the dominant motivation for the guaranty was
to protect his or her salary. United States v. Generes, 405 U.S.
93 (1972). The reason for either situation is that, upon payment
by the guarantor, the debtor’s obligation to the creditor becomes
an obligation to the guarantor, not a new debt, and by
subrogation the guarantor steps into the shoes of the creditor.
Putnam v. Commissioner, 352 U.S. 82, 85 (1956). No deduction is
allowable, however, if at the time the guaranty was made, the
taxpayer had no reasonable expectation of repayment of the sums
advanced. Hoyt v. Commissioner, 145 F.2d 634 (2d Cir. 1944);
Thompson v. Commissioner, 22 T.C. 507 (1954).
The record does not support petitioners’ contention that
loan payments in 1999 were necessary to protect petitioner
Brody’s salary of $266,083 from KOA. Petitioners were compelled
to make their loan repayments to Franklin National Bank not as
guarantors, but as debtors. Petitioners were listed as “co-
borrowers” and thus were liable in the first instance. However,
even if we were to assume that loan repayments were made by
petitioners as guarantors, nothing in the record indicates that
petitioners would have had a worthless claim against KOA, since
KOA paid petitioner Brody’s salary in 1999 in the amount of
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