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Petitioners contend that this case is controlled by Selfe v.
United States, 778 F.2d 769 (11th Cir. 1985). In Selfe, the
United States Court of Appeals for the Eleventh Circuit indicated
that the shareholder's guaranty of an S corporation loan could
increase the shareholder's basis even though the shareholder had
not satisfied any of the obligation. Id. at 774. The court
remanded the case to the District Court for it to decide whether
the taxpayer's guaranty amounted to either an equity investment
in or a shareholder loan to the corporation. Id. at 775. It
instructed the District Court to determine whether the loan in
question was in substance a loan to the shareholder rather than
to the corporation. Id.
Petitioners' reliance on Selfe is misplaced. In Selfe, the
taxpayer started a business and obtained a loan which was secured
by her own property. The taxpayer later incorporated the
business under subchapter S and converted the loan into a
corporate obligation, which she guaranteed and which continued to
be secured by her own property. Id. at 770. The instant cases
are distinguishable on their facts from Selfe because SouthTrust
Bank made the original loans to REE and TNE, not to Eli and
Peter, and the collateral for the loans are REE's and TNE's
assets, not Eli's and Peter's. See Wise v. Commissioner, T.C.
Memo. 1997-135 (also appealable to the Eleventh Circuit).
Moreover, it is well established that a shareholder cannot
increase his or her basis in an S corporation's stock absent an
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