T.C. Memo. 1999-425
UNITED STATES TAX COURT
THOMAS F. AND THERESE GROJEAN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 14374-98. Filed December 29, 1999.
P organized A to acquire 100 percent of the stock
of S. To finance the purchase, A and S borrowed $13.2
million from the bank, and A and S signed a promissory
note in favor of the bank (the note). P was not a
party to the note. P contemporaneously borrowed $1.2
million from the bank and signed a note in favor of the
bank (P note), and P used the funds to purchase a $1.2-
million participation interest in the note. The note
and the P note had identical terms, and the bank
automatically credited amounts due under the P note
with amounts due P for his participation interest. No
cash changed hands, and all funds were electronically
credited at the bank. In calculating his allowable
distributive share of S losses for 1989, 1990, and
1991, P included in his basis $1.2 million for his
participation share. Held: In substance P functioned
as a guarantor of $1.2 million of the note, and P is
not entitled to include in his S basis the $1.2 million
participation interest. P did not make the requisite
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