- 13 -
The Eleventh Circuit agreed that economic outlay is required
before stockholders in an S corporation may increase their basis,
and that "In most cases, a mere guarantee of a corporate loan is
insufficient, absent subrogation, to increase a taxpayer's
basis." Selfe v. United States, supra at 774. The court noted,
however, that "a guarantor who has pledged stock to secure a loan
has experienced an economic outlay to the extent that that
pledged stock is not available as collateral for other
investments." Id. at 772 n.7.
Relying upon the principles of Plantation Patterns, Inc. v.
Commissioner, 462 F.2d 712 (5th Cir. 1972), affg. T.C. Memo.
1970-182, the Eleventh Circuit held that "a shareholder guarantee
of a loan may be treated for tax purposes as an equity investment
in the corporation where the lender looks to the shareholder as
the primary obligor." Selfe v. United States, supra at 774. The
court concluded that "under the principles of Plantation
Patterns, a shareholder who has guaranteed a loan to a Subchapter
S corporation may increase her basis where the facts demonstrate
that, in substance, the shareholder has borrowed funds and
subsequently advanced them to her corporation." Id. at 773. In
Selfe, the specific issue before the court was whether any
material facts were at issue making summary judgment
inappropriate. Finding that such issues existed, the court
Page: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 NextLast modified: May 25, 2011