Bill L. and Patricia M. Spencer - Page 38

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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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