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represent petitioner’s cost in obtaining his Wedgewood
investment.
C. Petitioner’s Burden
To prevail, petitioner must prove that he, not Culnen
& Hamilton, invested in Wedgewood. See, e.g., Prashker v.
Commissioner, 59 T.C. 172, 176 (1972) (estate, of which taxpayer
was executrix and sole beneficiary, advanced funds to
S corporation of which she was 50 percent shareholder: “[T]he
key question is whether or not the debt of the corporation runs
‘directly to the shareholder.’”). To prove that petitioner
invested in Wedgewood, he must prove that the Wedgewood payments
created indebtedness on the part of Wedgewood to him. See
Bolding v. Commissioner, 117 F.3d 270 (5th Cir. 1997) (true
obligor on bank line of credit extended to S corporation was
shareholder in his individual capacity and not on behalf of
corporation), revg. on another issue T.C. Memo. 1995-326;
Prashker v. Commissioner, supra at 176 (“a shareholder could
borrow the money personally and then loan the money to the
corporation. In that event, the corporation’s debt would run
directly to the shareholder.”).
7(...continued)
credibly that all of his investment in Wedgewood was reflected in
the Wedgewood payments. We cannot reconcile respondent’s
agreement that petitioner owned a substantial portion of
Wedgewood’s shares with his argument that the Wedgewood payments
constitute an investment by Culnen & Hamilton.
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