Gary Nguyen owns his own real estate business. He has developed a reputation within the community for honesty and integrity. He believes that this is one of the reasons his firm has been so successful. Gary was a 30 percent shareholder in an unsuccessful fast-food restaurant, Pho-to-Go. Although he personally thought the business had great food and was well run, it never appealed to the local community. Early this year, the corporation filed bankruptcy. Many of the creditors of Pho-to-Go were also clients of Gary’s real estate business. After Pho declared bankruptcy, Gary’s real estate business began to suffer. Gary felt that the decline in his real estate business was related to the bankruptcy of Pho. Thus, Gary used the earnings of his real estate business to repay all the creditors of Pho-to-Go. Within a few months, Gary’s real estate business began to pick up. Gary has asked you to determine if his real estate business can deduct the expenses of repaying Pho-to-Go’s creditors as ordinary and necessary business expense.

1. What primary authority are you relying on in your conclusion? Be sure to provide atleast two "CODES" and identify the authority as legislative, judicial, or administrative.

2. Are Gary’s Pho-to-Go’s debts paid deductible in Gary’s real estate business as an ordinary necessary business expense? Why?