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burden of proving otherwise. Rule 142(a); Welch v. Helvering,
290 U.S. 111, 115 (1933).
Section 1368(b)(2) provides that if the amount of a
distribution of property made by an S corporation to a
shareholder exceeds the adjusted basis of the shareholder's stock
in the S corporation, such excess is treated as gain from the
sale or exchange of property in the taxable year of the
distribution. The amount of the gain, if any, that Peter and Eli
are required to recognize because of the distributions they
received during 1992, therefore, depends on their adjusted bases
in the stock of TNE and REE at the end of 1992.
Petitioners contend that respondent erred by not allowing
Eli and Peter to increase their adjusted bases in their stock in
REE and TNE by the $450,000 loans from SouthTrust Bank to REE and
TNE. They argue that, in substance, the loan transactions
constitute loans to Eli and Peter followed by capital
contributions by them of the proceeds to REE and TNE.
Respondent argues that petitioners are bound by the form of
their transactions. Respondent further argues that if the Court
does consider petitioners' substance over form argument, the
transactions do not constitute capital contributions because Eli
and Peter did not make an economic outlay in connection with
their guarantees.
Section 1012 provides that the basis of property is the cost
of the property. A shareholder's basis in his shares of
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