Thomas F. and Therese Grojean - Page 2

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               cash outlay, and there was no direct obligation between                 
               P and S.  Held, further, P’s are liable for the                         
               addition to tax for filing untimely their returns.                      
          Edward J. Hannon and Arthur M. Holtzman (specially                           
          recognized), for petitioners.                                                
               William T. Derick, for respondent.                                      

                       MEMORANDUM FINDINGS OF FACT AND OPINION                         

               LARO, Judge:  Respondent determined the following                       
          deficiencies in petitioners’ 1989 through 1991 Federal income tax            
          and additions thereto:                                                       
                                              Additions to Tax                         
                    Year     Deficiency        Sec. 6651(a)(1)                         
                    1989      $115,471             $11,547                             
                    1990       176,382             8,819                               
                    1991        11,570             -                                   
          After concessions, we decide the following issues:                           
               1. Whether petitioner’s basis in his S corporation stock                
          under section 1366(d) includes his participation interest in a               
          loan between a bank and his S corporation.  We hold it does not.             
               2.  Whether petitioners are liable for the additions to tax             
          determined by respondent.  We hold they are.                                 
               Rule references are to the Tax Court Rules of Practice and              
          Procedure, and section references are to the Internal Revenue                
          Code as applicable to the years in issue.  Singular references to            
          petitioner are to Thomas F. Grojean.                                         

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