- 29 -
Intent and Wesco were acting as agents for Wise and Eicher with
respect to the Westfield, Intent, and Wesco loans, and therefore
the funds lent to WRI came directly from Wise and Eicher. We
agree with respondent.
For the reasons discussed at par. E-1, above, relating to
the HMC loan, we will not recharacterize the form of these
transactions. From 1986 to 1990, there was no default on the
Westfield loan, the loan repayments were made directly from WRI
to Westfield, and neither Wise nor Eicher had to make any
payments on the Westfield note. In addition, WRI made no
repayments on its loans from Intent or Wesco.
Intent, like WRI, was an S corporation, and Wesco, like
Hersco, was a partnership. As discussed at par. E-2-a, above,
relating to the Hersco loan, borrowing from an entity in which
the shareholders of an S corporation have substantial or even
identical ownership interests does not qualify as indebtedness
which runs directly to the S corporation's shareholders.
Hitchins v. Commissioner, supra at 715; Frankel v. Commissioner,
supra at 347-350; Prashker v. Commissioner, supra at 172. Thus,
Wise and Eicher may not increase their respective bases in WRI as
a result of either Intent's loan of a majority of the proceeds
from the Westfield loan or Wesco's loans. We agree with
respondent on this issue.
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