Payment on Guarantees
With the onset of financial and economic trauma in agriculture in the mid 1980s, the matter of loan guarantees assumed greater importance than at any time since the 1930s. In a typical situation, a parent has guaranteed a machinery or livestock loan; if the child is unable to pay as the primary obligor, the parent may be elevated to a position of primary liability. The question then becomes whether the parent as guarantor has a bad debt deduction if the parent makes good on the loan. If the parent does not pay, and instead manages to negotiate a discharge of indebtedness, the question becomes whether the parent as guarantor has discharge of indebtedness income.