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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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