-36-
paid their debt to Lubbock in 1970 the taxpayers had made no
additional investment in Albuquerque that would increase
their adjusted basis in an indebtedness of Albuquerque to
them * * *. [535 F.2d at 312; fn. refs. omitted.]
In Estate of Leavitt v. Commissioner, 90 T.C. 206 (1988),
affd. 875 F.2d 420 (4th Cir. 1989), we reiterated our position
that the guaranty of a loan without actual economic outlay does
not increase a shareholder's basis in the corporation. However,
the Court of Appeals for the Eleventh Circuit held in Selfe v.
United States, 778 F.2d 769 (11th Cir. 1985), that although
economic outlay is required to increase a shareholder's basis, it
is not always necessary for the shareholder to actually absolve
the corporation's debt to pass the test. If the facts
demonstrate that in substance the shareholder borrowed funds and
advanced them to the corporation, an increase in basis is
warranted. The instant case is appealable in the Eleventh
Circuit, and we are constrained to follow the law in that
circuit. Golsen v. Commissioner, 54 T.C. 742 (1970), affd. 445
F.2d 985 (10th Cir. 1971). However, the facts of the case before
us do not fall within the scope of the Court of Appeals' holding
in Selfe.
In Selfe, the shareholders made loan guaranties to
disinterested third parties in arm's-length transactions.
Clearly, acting as a guarantor in an arm's-length loan with a
disinterested party is not the same as interjecting oneself as
the middleman in several loan obligations between one's wholly
Page: Previous 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 NextLast modified: May 25, 2011