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$266,083. In contrast, his salary was $17,708 in 1997, the year
in which petitioners secured the loan, and his salary was
$132,082 in 1998. Moreover, petitioner Brody was not required to
provide a guaranty on the loan as a condition of his employment
with KOA. See Rev. Rul. 71-561, 1971-2 C.B. 128. Because
petitioners repaid the loan in their role as debtors and not as
guarantors, or because there is no evidence that any claim by
petitioners against KOA would be worthless, United States v.
Generes, supra, is distinguishable, and petitioners’ dominant
motivation is irrelevant. We sustain respondent’s determination
on this issue.
Schedule C Deductions
Petitioners claimed the following expenses on petitioner
Brody’s Schedule C: (1) $4,367 for repairs and maintenance; (2)
$33,911 for “Office Space & Expenses paying for kidsOA [sic]
Employees”; and (3) $5,016 for “Interest on funds borrowed to pay
KidsOA bills”. All of these expenses relate to KOA. As
indicated earlier, the only evidence of funds borrowed in the
present case is the loan by Franklin National Bank to petitioners
and KOA.
A taxpayer who pays expenses of a corporation in which he is
the principal shareholder may deduct such payments if they were
made to protect or promote the taxpayer’s own trade or business.
Lohrke v. Commissioner, 48 T.C. 679, 684-685 (1967); Dietrick v.
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