Merriman H. Holtz and Helene Tyroll Holtz v. Commissioner of Internal Revenue

This is a petition for review of a Tax Court decision sustaining the Commissioner’s determination of deficiencies in income taxes of the petitioners (husband and wife, herein referred to as petitioner) for the years 1949 and 1950. Petitioner, as guarantor of certain corporate obligations, sought to deduct as business bad debts ( 26 U.S.C. § 23 , Internal Revenue Code of 1939 § 23 (k) (1)) certain amounts he was compelled to pay upon default of corporate debt. The Commissioner determined that the losses thus sustained were non-business bad debts and deductible under the more limited provisions of § 23 (k) (4), which provides short term capital loss treatment for non-business bad debts, as opposed to the ordinary losses allowed from business bad debts under § 23(k) (1).

Both the Tax Court and this Court have jurisdiction. 26 U.S.C. (I.R. C.1939) § 1141(a); (I.R.C.1954) § 7482 (a).

The sole question presented on appeal is not whether the deduction is allowable, but how. Did the Tax Court err in holding that a loss resulting from the petitioner’s guaranty of loans made to a corporation was deductible by him as a non-business bad debt, rather than as a business bad debt, as claimed…