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incorporation of that business, the taxpayer pledged stock in a
family-owned corporation, Avondale Mills, in exchange for a line
of credit to be used in the business. Subsequently, the clothing
business was incorporated as Jane Simon, Inc. At the request of
the bank, all loans made to the taxpayer individually, with the
exception of $10,000, were converted to corporate loans (to Jane
Simon, Inc.). The taxpayer guaranteed all such indebtedness to
the bank. At trial, the loan officer employed by the bank
testified that the bank wanted the assurance of having the
corporation primarily liable for repayment of the loan, but that
the conversion did not abridge the stock pledged as collateral,
or the bank's rights against the taxpayer as guarantor, in the
event of the corporation's default. Subsequently, the
corporation (Jane Simon, Inc.) granted the bank a security
interest in its receivables, inventory, and contract rights in
order to obtain renewal of its loans.
Relying on Selfe v. United States, supra, petitioners argue
that the bank loan was, in substance, a loan to Messrs. Spencer
and Boozer and a subsequent capital contribution of such loan
proceeds to SPC-SC.
There are, however, fundamental differences between the
instant case and Selfe. The corporate indebtedness in Selfe was
preceded by a loan to the shareholder in her individual capacity.
That loan was subsequently converted to a corporate loan, upon
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