- 20 - deductions. See sec. 1366(a). The aggregate amount of deductions and losses that the taxpayer may take into account generally is limited, however, to the sum of: (1) The adjusted basis of the shareholder’s stock in the S corporation, and (2) the shareholder’s adjusted basis in any indebtedness owed by the corporation to the shareholder. See sec. 1366(d)(1).16 Petitioners have failed to establish what balance, if any, was outstanding with respect to the line of credit, or enhancements thereof, between AMI and Towers Development as of each taxable year in question. AMI was to make loan disbursements to Towers Development in accordance with a line of credit construction loan agreement, but petitioners have put into evidence neither the line of credit construction loan agreement nor other evidence that would credibly establish the amounts and dates of disbursements made by AMI under the line of credit. AMI extended the line of credit to Towers Development in May 1985. One of petitioners’ witnesses, James Guerino (Guerino), a 16 For the years in issue, the regulations provide that adjustments to the basis of a shareholder’s stock and to the basis of indebtedness of an S corporation to a shareholder “must be determined in a reasonable manner, taking into account the statute and the legislative history.” Sec. 1.1367-3, Income Tax Regs. For the years in issue, return positions are deemed reasonable if consistent with the regulatory rule, expressly applicable to taxable years of corporations beginning on or after Jan. 1, 1994, that adjustments to the basis of a shareholder’s stock and to the basis of indebtedness are generally determined as of the close of the corporation’s taxable year and are generally effective as of that date. See secs. 1.1367-1(d)(1), 1.1367-2(d)(1), and 1.1367-3, Income Tax Regs.Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Next
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