- 6 - 1981-608.5 The economic outlay required under section 1366(d)(1)(B) must leave "the [taxpayers] poorer in a material sense." Perry v. Commissioner, 54 T.C. 1293, 1296 (1970), affd. per order (8th Cir. 1971) (quoting Horne v. Commissioner, 5 T.C. 250, 254 (1945)). Although a bona fide loan from a shareholder to an S corporation will increase the shareholder's basis, the shareholder must make an actual economic outlay and directly incur the indebtedness. Underwood v. Commissioner, 63 T.C. 468, 476 (1975), affd. 535 F.2d 309 (5th Cir. 1976). As was noted by this Court in Raynor v. Commissioner, 50 T.C. 762, 770-771 (1968): No form of indirect borrowing, be it guaranty, surety, accommodation, comaking or otherwise, gives rise to indebtedness from the corporation to the shareholders until and unless the shareholders pay part or all of the obligation. Prior to that crucial act, "liability" may exist, but not debt to the shareholders. * * * The shareholders must make actual disbursements on the indebtedness before they can augment their bases for the purpose of deducting losses. Estate of Leavitt v. Commissioner, supra at 422. Since petitioners have not made actual disbursements on the loans, they are not entitled to increase their bases. 5 Most of the cases interpreting "indebtedness of the S corporation to the shareholder" apply to former sec. 1374(c)(2). That section was repealed by the Subchapter S Revision Act of 1982, Pub. L. 97-354, sec. 2, 96 Stat. 1669, 1677-1683, effective for tax years beginning after Dec. 31, 1982. There are no differences between former sec. 1374(c)(2)and the current sec. 1366(d)(1)(B) that affect this analysis.Page: Previous 1 2 3 4 5 6 7 8 Next
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