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corporate stock is equal to the amount paid for the stock.
Estate of Leavitt v. Commissioner, 90 T.C. 206, 212 (1988), affd.
875 F.2d 420 (4th Cir. 1989); Uri v. Commissioner, T.C. Memo.
1989-58, affd. 949 F.2d 371 (10th Cir. 1991); sec. 1.1012-1(a),
Income Tax Regs.
Section 1016(a)(1) generally provides that the basis of
property shall be adjusted for items properly chargeable to a
capital account. A shareholder's basis in the shares of stock of
a corporation is increased by any additional contributions to the
capital of the corporation made after the acquisition of the
shares. Sec. 1.118-1, Income Tax Regs.5 The resolution of this
issue depends on whether Eli's and Peter's personal guaranties
may be treated as capital contributions which increase their
adjusted bases in their shares of stock in REE and TNE.
Ordinarily, taxpayers are bound by the form of the
transaction they have chosen and may not in hindsight recast the
transaction to obtain tax advantages. Don E. Williams Co. v.
Commissioner, 429 U.S. 569, 579-580 (1977); Commissioner v.
National Alfalfa Dehydrating & Milling Co., 417 U.S. 134, 148-149
(1974).
After reviewing the loan documents submitted into evidence
in these cases, and having considered the testimony of Peter
5 This rule applies in addition to the basis adjustments
specific to S corporation shareholders. Sec. 1.1367-1(a)(2),
Income Tax Regs.; see secs. 1016(a)(17), 1367(a).
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