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In the capacity of a creditor, a taxpayer realizes a loss
from a loan made to a corporation that becomes worthless and
uncollectible. The amount of loss from a worthless loan is the
adjusted basis of the promissory note representing the debt. See
sec. 166. The adjusted basis of a note equals the face amount of
the debt minus any principal paid back by the debtor corporation.
See sec. 1.166-1, 1.1011-1, Income Tax Regs. Where a taxpayer
borrows money from a third party and contributes or reloans the
proceeds to a corporation, the taxpayer includes the proceeds
transferred to the corporation in the basis of his stock in the
corporation or in the promissory note representing the debt. The
increase in basis occurs regardless of whether the taxpayer
repays the third-party loan. See Brenner v. Commissioner, 62
T.C. 878, 883 (1974).
Amount of Losses
Petitioners claim to have suffered a loss in the amount of
$1,255,400 from petitioner’s dealings with Pharmacare.
Respondent concedes that a loss was incurred by petitioners in
the amount of $414,000 but contests the occurrence of the
following transfers, which petitioners claim were loans made to
Pharmacare:
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Last modified: May 25, 2011