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B. SCNB Bank Loan to SPC-SC
We next consider whether, due to Mr. Spencer's guaranty of
the bank loan made by SCNB directly to SPC-SC, he had any basis
in the bank loan, within the meaning of section 1366(d), that
would allow him to take into account his pro rata share of SPC-
SC's losses in determining his taxable income.
This court has held that mere shareholder guaranties of S
corporation indebtedness generally fail to satisfy the
requirements of section 1366(d)(1)(B) (i.e., economic outlay plus
a direct indebtedness between the corporation and its
shareholders). Estate of Leavitt v. Commissioner, 90 T.C. 206
(1988), affd. 875 F.2d 420, 422 (4th Cir. 1989); Raynor v.
Commissioner, 50 T.C. 762, 770-771 (1968); Brown v. Commissioner,
T.C. Memo. 1981-608, affd. 706 F.2d 755 (6th Cir. 1983). No form
of indirect borrowing, including a guaranty, gives rise to
indebtedness from the corporation to the shareholders for such
purpose until and unless the shareholders pay part or all of the
obligation. Raynor v. Commissioner, supra at 770-771; see also
Perry v. Commissioner, 47 T.C. 159, 164 (1966), affd. 392 F.2d
458 (8th Cir. 1968) (there is nothing in the statutory wording,
nor the regulations, nor the committee reports which warrants an
inference that a shareholder's contract of guaranty with
corporate creditors is tantamount to an indebtedness of the
corporation to the shareholder). Prior to that crucial act,
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