ABC Beverage Corp., f.k.a. Beverage America, Inc. - Page 22

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          Properties loan.  See id. at 45.  The key contributing factor to            
          Properties’ inability to repay the loan was G&K’s failure to                
          obtain financing, wholly out of the control of Bottlers.                    
          Properties anticipated that G&K would purchase the bottling                 
          facilities, but ultimately G&K could not.  While Bottlers’                  
          failure to pay the full amount of rent due contributed to the               
          worthlessness of the loan,6 other factors contributed as well.              
          These two significant differences convince us that it would be              
          inappropriate to follow PepsiAmericas here.                                 
               We also decline respondent’s invitation to articulate an               
          absolute rule that a taxpayer may never deduct a debt as                    
          worthless if the taxpayer contributed to the worthlessness.  We             
          find that legitimate business decisions contributing to the                 
          worthlessness of a debt do not preclude a bad debt deduction in             
          these circumstances.  Cf. PepsiAmericas, Inc. v. United States,             
          supra at 48.  Accordingly, we find that petitioner may deduct the           
          worthless portion of the Properties loan notwithstanding that               
          Bottlers’ actions contributed to its worthlessness.                         

               6Even if Bottlers had paid the full amount of the rent due             
          under the lease, Properties still might have been unable to                 
          satisfy its obligations under the loan without a third party                
          purchasing the bottling facilities.  Properties would not be able           
          to deduct principal payments it paid Bottlers on the loan and               
          would thus have more income than deductions, giving rise to                 
          income tax liability.  This liability would ruin the net zero               
          cashflow effect of the deal and would cause Properties to be                
          unable to repay the loan.                                                   

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