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for the years in question, petitioner’s adjusted basis in his
shares of stock of the corporation was zero.
OPINION
I. Introduction
We must determine whether petitioner may deduct his pro rata
share of certain losses of the corporation, an S corporation.
The parties agree that the answer to that question turns on
whether petitioner had more than a zero adjusted basis in his
shares of the corporation (the shares). Petitioners’ only
argument for an adjusted basis in excess of zero is that, on
account of the guaranty, petitioner should be viewed as having
made a capital contribution to the corporation.
II. Provisions of the Code
In pertinent part, section 1366(a) provides that a
shareholder of an S corporation may deduct his pro rata share of
the S corporation’s loss, subject to the limitations contained in
section 1366(d)(1).
Section 1366(d)(1) provides:
Cannot Exceed Shareholder’s Basis in Stock and Debt.
-–The aggregate amount of losses and deductions taken
into account by a shareholder under subsection (a) for
any taxable year shall not exceed the sum of--
(A) the adjusted basis of the shareholder’s
stock in the S corporation * * *, and
(B) the shareholder’s adjusted basis of any
indebtedness of the S corporation to the
shareholder * * *
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