William H. Maloof - Page 9
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the guaranty to increase basis in the S corporation.8 Perry v.
Commissioner, 392 F.2d 458 (8th Cir. 1968) (corporate debts
guaranteed by the shareholder were not debt whose basis is taken
into account for loss passthrough purposes). But see Selfe v.
United States, supra (sole shareholder may get a basis increase
in stock if the loan was in fact made to him or her and borrowed
funds were re-lent to corporation). Cf. Estate of Leavitt v.
Commissioner, 90 T.C. 206 (1988) (no basis increase for
shareholder-guaranteed loan to corporation; majority refused to
apply debt-equity principles to S corporation’s guaranteed loan,
The shareholder in an S corporation therefore, generally,
may not increase his or her basis in the S corporation by simply
guaranteeing the debt of an S corporation. Because petitioner
was not called upon to perform under the loan or make any
payment, we hold that his personal guaranty did not increase his
basis in Level Propane.
We next address whether petitioner’s pledge of stock of an S
corporation to secure the loan the bank made to the S corporation
constitutes an economic outlay. We address, first, our caselaw,
8By contrast, a limited partner who guarantees a nonrecourse
partnership debt may be allowed to increase basis.
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