- 22 -
Pollack v. Commissioner, 47 T.C. 92, 108 (1966), affd. 392 F.2d
409 (5th Cir. 1968).
Even if we were to assume, for sake of argument, that there
existed some amount of outstanding indebtedness on the line of
credit between AMI and Towers Development as of any taxable year
in question, petitioners have not established that their Towers
Development stock bases should be increased as a result of any
such indebtedness. AMI made the loans directly to Towers
Development, which made all repayments, including principal and
interest. Towers Development made every payment to AMI out of
funds received from the sale of town houses. Petitioners made no
economic outlays with regard to the loans in question.18
This Court and various Courts of Appeals have held generally
that a shareholder’s guaranty of a corporate loan cannot increase
the shareholder’s stock basis absent an economic outlay by the
shareholder. See Estate of Leavitt v. Commissioner, 90 T.C. 206
(1988), affd. 875 F.2d 420 (4th Cir. 1989), and cases cited
therein. The Court of Appeals for the Eleventh Circuit has held
18 Petitioners argue that Briggs and Daniell were primary
makers on the June 30, 1987, construction line of credit from
First Federal and suggest that the loan proceeds were used to pay
off the AMI construction line of credit to Towers Development.
The record clearly indicates, however, that the First Federal
loan disbursements were to be made only as construction
progressed on Gulf Highlands, and that these disbursements were
to be used solely to pay construction costs. Furthermore, as
previously discussed, the record does not establish that there
was any outstanding balance on the AMI construction line of
credit when the First Federal loan was obtained.
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