It does not matter that the obligation raised by the law was totally worthless when it arose. Agnes I. Fox, 14 T.C. 1160 (1950), revd. 190 F.2d 101 (C.A. 2, 1951); Barnhart-Morrow Consolidated, 47 B.T.A. 590 (1942), affd. 150 F.2d 285 (C.A. 9, 1945). The cases of Abraham Greenspon, 8 T.C. 431 (1947), and Frank B. Ingersoll, 7 T.C. 34 (1946), relied on by petitioner are distinguishable on their facts. SEC. 23. DEDUCTIONS FROM GROSS INCOME.In computing net income there shall be allowed as deductions:(k) BAD DEBTS.—(4) NON-BUSINESS DEBTS.

(C.A. 7) 189 F.2d 297, and held, where petitioners acquired by parol agreement a legal part ownership of certain oil and gas leases and producing wells, and all parties at interest recognized petitioners' ownership, respondent, for lack of privity, cannot question petitioners' title because of the statute of frauds. Cf. Francis M. Camp, 21 B.T.A 962; Abraham Greenspon, 8 T.C. 431, and, therefore, held, petitioners, who conveyed one-half of their interest in such properties to their son, are not taxable upon the income from such interest so conveyed, the son being a part owner to that extent. In these consolidated proceedings respondent determined deficiencies in income tax against the petitioners as follows:

The debt was a nonbusiness debt and, being worthless when it arose, see and compare Eckert v. Burnet, 283 U.S. 140, it was deductible by petitioner, subject to the limitations of section 23(k)(4), supra. To support her claim that the loss here was a transaction entered into for profit within the meaning of section 23(e)(2) and not a bad debt loss under section 23(k)(4), petitioner, among other cases, cites and relies on Abraham Greenspon, 8 T.C. 431; Carl Hess, 7 T.C. 333; and R. W. Hale, supra. The Hale and Hess cases are different and are distinguishable from the instant case in that the payments in those cases were part and parcel of contracts for the sale of stocks.

In making these repayments, he was simply waiving a defense which could have been asserted if the lenders had attempted to enforce their claims against him and acknowledging a viable debt to the extent of each repayment. Abraham Greenspon, 8 T.C. 431, 434 (1947). The inherent character of the obligations was not changed by the bankruptcy proceeding.

It is also clear that even if the loan was not connected with petitioner's trade or business, the loss was incurred in a ‘transaction entered into for profit.’ Abraham Greenspon, 8 T. C. 431. The possibility of petitioner recovering in a future year any part of the $53,000 paid to the bank was extremely remote, as Briley was at that time hopelessly insolvent.

Since the corporation was not dissolved until December 15, 1950, this case is distinguishable from those holding that no debt arose in guarantor's favor when the principal debtor was not in existence at the time the guarantor satisfied his obligation. Abraham Greenspon, 8 T. C. 431; Frank B. Ingersoll, 7 T. C. 34; Fox v. Commissioner, (C. A. 2) 190 F. 2d 101, reversing 14 T. C. 1160. In George Aftergood, 21 T. C. 60, our most recent case in point, we stated:

There is evidence from which it may be concluded that petitioner's promise to some of the creditors of its subsidiary to make good their losses on the subsidiary's 77B reorganization was contemporaneous with the latter proceeding, and that the consent of the creditors to the reorganization was a consideration for petitioner's undertaking. If so, the payment by petitioner was pursuant to a contractual obligation notwithstanding the principal debtor's discharge, see Abraham Greenspon, 8 T.C. 431; Welch v. Helvering, 290 U.S. 111, footnote 1; and deduction as a loss of the amounts paid accordingly would be proper in the instant year. Charles G. Berwind, 8 T.C. 1112.

We have said before that even a moral obligation arising out of a business transaction will suffice to support a loss deduction. Herschel V. Jones, 1 B.T.A. 1226; Abraham Greenspon, 8 T.C. 431. The petitioner here was no mere volunteer.