- 10 -
claimed losses. Respondent disallowed the losses in full and
made other computational adjustments resulting from this
determination.
Petitioners’ 1989 and 1990 Federal income tax returns were
due, with extensions, on October 15, 1990, and August 15, 1991,
respectively. Petitioners filed those returns on December 13,
1990, and September 5, 1991, respectively.
OPINION
We decide whether petitioner may increase his basis in
Schanno under section 1366(d) by the $1.2 million purchase price
of his participation interests in the Schanno note and the
Schanno credit note. Respondent argues that petitioner received
no basis on account of his participation interests because the
Grojean note and the Grojean credit note were disguised
guaranties, and petitioner did not make the requisite economic
outlay. Alternatively, respondent argues that the Grojean note
and the credit note were an integral part of interrelated
transactions having no independent economic substance. We agree
with respondent that petitioner functioned as if he were a
guarantor of Schanno’s indebtedness to American, and petitioner
is not entitled to a basis increase for the guaranty.
Section 1366(a) requires a taxpayer to take into account the
pro rata share of income, losses, and deductions of an S
corporation of which the taxpayer is a shareholder. The losses
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011