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economic outlay by the shareholder. Reser v. Commissioner, 112
F.3d 1258, 1264 (5th Cir. 1997), affg. on this issue T.C. Memo.
1995-572; Goatcher v. United States, 944 F.2d 747, 751 (10th Cir.
1991); Harris v. United States, 902 F.2d 439, 445 (5th Cir.
1990); Estate of Leavitt v. Commissioner, 875 F.2d at 422; Selfe
v. Commissioner, supra at 772.
We find that Eli's and Peter's wholly unperformed guaranties
in these cases do not meet the requirement that a shareholder
make an economic outlay in order to increase his basis in his
stock. As explained above, these guaranties were not tantamount
to equity investments nor to shareholder loans to the
corporations. Thus, it is only the actual payment by the
guarantor of the guarantied obligation that constitutes an
economic outlay, not the guaranty itself. Estate of Leavitt v.
Commissioner, 875 F.2d at 422-423; Underwood v. Commissioner, 63
T.C. 468, 476 (1975), affd. 535 F.2d 309, 312 (5th Cir. 1976);
Perry v. Commissioner, 47 T.C. 159, 163-164 (1966), affd. 392
F.2d 458 (8th Cir. 1968). In these cases, Eli and Peter did not
pay any of the loans that they guaranteed and therefore did not
increase their capital investments in REE and TNE. Accordingly,
we hold that Eli and Peter may not increase their respective
bases in REE and TNE by the principal amounts of the South Bank
Trust loans. Respondent's determinations are sustained on this
issue.
Allocation of Basis
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