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surety bonds for the benefit of his
Expenses & Deductions company. Expert testimony pointed to A partner providing
the CEO’s personal guaranties of these
Paying for personal obligations as partial justification for a personal guaranty
guaranties of company debts his multimillion-dollar compensation. may be entitled
It is common for business owners to The court agreed that it is customary to an increase in
personally guarantee company debts. for the owners of construction
This is a valuable service since many companies to guarantee debts and the basis of his or
private companies could not otherwise bonds and that compensation for her partnership
obtain financing in the current lending these guaranties is appropriate. The interest by virtue of
market. Indeed, business owners already court also acknowledged that such fees
face considerable risks and may not may qualify as a deductible business guaranteeing the
want to assume more. When they expense under Sec. 162(a). However, partnership’s debt.
do, they provide value that justifies the court stated that Clary Hood Inc.
additional compensation for themselves. had not met all five requirements for
A recent Tax Court opinion laid deductibility of the guaranty fees. The ■ Whether the payer had sufficient
out the requirements that must be met court’s analysis considered: profits to pay a dividend but failed
to support the payer’s deduction for ■ Whether the fees were reasonable in to do so; and
any such fees. In Clary Hood, Inc., T.C. amount, given the financial risks; ■ Whether the purported guaranty
Memo. 2022-15, the issue was whether ■ Whether businesses of the same type fees were proportional to stock
the owner/CEO of a construction and size as the payer customarily pay ownership.
company had been paid unreasonable such fees to shareholders;
compensation. Among his many duties, ■ Whether the shareholder-employee Reasonable in amount
the CEO had guaranteed business demanded compensation for the The first factor above requires that
loans, credit lines, capital leases, and guaranty; such fees be “reasonable in amount.”

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