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of liquid funds with which to make the payment. There is no
constructive receipt if the payor lacks the funds to make the
payments. See par. A-1, above. Estate of Noel v. Commissioner,
50 T.C. at 706-707; Jacobs v. Commissioner, 22 B.T.A. at 1169.
The mere recording of a payment on the books of Hersco is not
receipt. See sec. 1.451-2(a), Income Tax Regs. There was no
constructive receipt by Eicher. Thus, the $77,122 is not
includable in Eicher's 1988 gross income. We agree with
petitioners on this issue.
D. Wise's and Eicher's Basis in WRI
Respondent contends that petitioners may not deduct pass-
through losses from WRI for 1988 because Wise and Eicher each had
a zero basis in WRI as of July 31, 1987, and each made net
contributions to WRI of only $9,909 and $13,701, respectively.
Petitioners contend that Wise and Eicher each had enough basis in
WRI in 1988 to deduct their respective pass-through losses. We
agree with respondent.
The amount of pass-through losses that an S corporation
shareholder can deduct is limited to the sum of the shareholder's
adjusted basis in his stock and the shareholder's adjusted basis
of any indebtedness of the S corporation to the shareholder.
Sec. 1366(d)(1). WRI had operating losses in 1986 and 1987. As
of July 31, 1987, Wise and Eicher each claimed $840,617 of
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