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formation of the S corporation. Unlike Selfe, the bank loan in
issue in the instant case was made directly to the S corporation.
Mr. Spencer therefore was never primarily liable for repayment of
the bank loan.
Additionally, although in both Selfe and the instant case
each of the corporations granted security interests in its own
assets as collateral for the bank loans, the circumstances
surrounding each pledge of assets are very different. In Selfe,
the corporation granted a security interest in its receivables,
inventory, and contract rights in order to secure renewal of the
original loans. In the instant case, however, SPC-SC granted a
security interest in the assets acquired from SSI in order to
secure the initial loan, suggesting that, from the very
beginning, SCNB was looking to the operating assets of SPC-SC for
generation of the revenues necessary to support the loan
payments.
Furthermore, unlike the taxpayer in Selfe, Mr. Spencer
failed to produce testimony from a bank representative concerning
the circumstances and expectations surrounding the bank loan. No
one from SCNB was called to testify that SCNB looked primarily to
the SPC-SC shareholders, Messrs. Spencer and Boozer, for
repayment of the bank loan. The only evidence that the bank
looked primarily to Messrs. Spencer and Boozer for repayment was
Mr. Spencer's own opinion to that effect. Petitioners contend
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