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"protected against loss" within the meaning of section 465(b)(4).
In respondent's view, because the Rapp Group waived any right of
recovery from petitioner in the event that they were required to
perform under their guaranties,28 petitioners faced no realistic
possibility of loss with respect to the amounts borrowed from
Huntington and, therefore, may not deduct losses attributable
thereto. As part of his argument, respondent maintains that
petitioner was a third-party beneficiary of the contract embodied
in the guarantor waivers, and could therefore have defeated any
action by the Rapp Group to recover from him the amounts they paid
to Huntington under their guaranties.
Even assuming arguendo that the Rapp Group was effectively
precluded from obtaining any reimbursement from petitioner of
their guaranty payments, we do not agree that this factor
eliminated any realistic possibility of loss by petitioner with
respect to the Miller/Huntington Loan. Under the
Miller/Huntington Loan, petitioner was the primary obligor on a
recourse basis. He gave a second mortgage on his residence to
secure his obligation. It is true that when MMS declared
insolvency (which was an event of default under the
Miller/Huntington Loan), Huntington in fact sought and obtained
28 Absent a waiver, a guarantor generally is entitled to
recover from the primary obligor any amounts that the guarantor
is required to pay to satisfy indebtedness. See, e.g., Brand v.
Commissioner, 81 T.C. 821, 828 (1983).
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