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income, losses, and deductions on their individual tax returns.
Sec. 1366(a)(1). However, a shareholder is only entitled to
claim losses and deductions to the extent that they do not exceed
the sum of the shareholder's adjusted basis in the corporation's
stock and any indebtedness of the corporation to the shareholder.
Sec. 1366(d)(1). Accordingly, petitioners must prove that they
had sufficient basis in Vosburg to absorb the loss and deduction
claimed.
This Court has looked to section 1012 when defining "basis"
for purposes of a shareholder's stock in an S corporation. See,
e.g., Estate of Leavitt v. Commissioner, 90 T.C 206, 212 (1988),
affd. 875 F.2d 420 (4th Cir. 1989); Borg v. Commissioner, 50 T.C.
257, 263 (1968). Section 1012 provides that "The basis of
property shall be the cost of such property". In addition, the
"cost" is "the amount paid for such property in cash or other
property." Sec. 1.1012-1(a), Income Tax Regs. Thus, petitioners
must demonstrate the requisite economic outlay necessary for
shareholders to claim basis. See, e.g., Estate of Leavitt v.
Commissioner, 875 F.2d at 422; Underwood v. Commissioner, 535
F.2d 309, 311 (5th Cir. 1976), affg. 63 T.C. 468 (1975).
In an attempt to substantiate their basis in Vosburg,
petitioners offered a series of checks written on various
corporate bank accounts. One of the checks was written on the
corporate bank account of Golden State Convalescent Hospitals,
Inc. (GSCH), in the amount of $25,000. The check is signed by
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