I have a tax project question that I need help with.  Here is the problem:
Joan McIntyre owns her own real estate business. She has developed a
reputation within the community for honesty and integrity. She
believes that this is one of the reasons her firm has been so
successful. Joan was a 30 percent shareholder in an unsuccessful
fast-food restaurant, Escargot-to-go. Although she personally thought
the business had great food and was well run, Escargot never appealed
to the local community. Early this year the corporation filed for
bankruptcy.
Many of the creditors of Escargot were also clients of Joan?s real
estate business. After Escargot declared bankruptcy, Joan?s real
estate business began to suffer. Joan felt that the decline in her
real estate business was related to the bankruptcy of Escargot so Joan
used the earnings of his real estate business to repay all the
creditors of Escargot-to-Go. Within a few months, Joan?s real estate
business began to pick up. Joan has asked you to determine if her real
estate business can deduct the expenses of repaying Escargot-to-Go?s
creditors.

Required: Using the Internal Revenue Code and relevant case law/s,
determine ALL issues including if Joan can deduct the amount paid to
corporation?s creditors. Document your answer with specific code and
case citations.
Any useful information would be great.  Thanks!

Is the real estate business a separate tax entity, or is Joan running
it as a sole proprietorship, i.e. she is the tax entity for the
business?

I would say she is running it as a sole proprietor.  My teacher didn't
clarify that so that 's what I'm going to assume.

That is an interesting assumption, since most savvy business persons
probably would establish an LLC, in which case Joan would not be able
to pass on her personal expenses in covering the debts to another tax
entity that she owned.
But more important is the question of whether she can take a tax
deduction for expenses that she paid voluntarily.
I rather doubt it, but I am not an expert, and this is no professional
advice, even if this is just an academic assignment  (Check the FAQs
about homework).