- 29 -
also argues that petitioners failed to make the requisite
economic outlay.
Petitioners contend that the substance of the transactions
in issue should be respected in accordance with their stipulated
form. Petitioners contend that they acquired assets from SSI and
then resold those same assets to SPC-SC and SPC-FL, respectively.
Moreover, petitioners assert that the transactions constitute so-
called back-to-back sales transactions which, similar to so-
called back-to-back loan transactions, entitle them to bases as a
result of the S corporations' indebtedness to them.
Petitioners argue that there is a direct obligation between
themselves and their respective S corporations and that the SPC-
SC and SPC-FL nominal debts, whether regarded as debt or equity,
are sufficient to provide bases at least to the extent of the
value of the property acquired by the corporations with such debt
instruments. Additionally, petitioners contend that because they
remain personally liable on the notes given to SSI (i.e., the S/B
and S/S/S notes) they made an actual economic outlay. Petitioners
argue that it is the alleged direct indebtedness of the S
corporations to petitioners that gives rise to bases within the
meaning of section 1366(d)(1)(B) rather than some required
economic outlay by the shareholders.
Petitioners acknowledge that they failed to follow all of
the steps that could have been taken in connection with these
Page: Previous 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 NextLast modified: May 25, 2011