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sufficient to increase shareholders’ basis because there is no
actual economic outlay. Economic outlay would not occur until
and unless the shareholders paid part or all of the obligation.
See id. at 211.
Without basis attributable to the loan, petitioners did not
have enough basis to recognize the full amount of flow-through
loss for the years in issue. See sec. 1366(d)(1). The
unrecognized loss would be suspended until petitioners acquired
basis to offset the loss. See sec. 1366(d)(2).
Partners in a partnership are also only entitled to claim
losses and deductions to the extent that they do not exceed the
sum of their adjusted basis in the partnership. See sec. 704(d).
However, partnership loans secured by a personal guaranty are
includable in a guaranteeing partner’s basis in the partnership.
See sec. 752(a).
Whether the existence of a corporation should be disregarded
for Federal income tax purposes is a question of Federal law.
See Stoody v. Commissioner, 66 T.C. 710, 716 (1976). Generally,
when taxpayers choose to conduct business through a corporation,
they will not be permitted subsequently to deny the existence of
the corporation if it suits them for tax purposes. See Moline
Properties, Inc. v. Commissioner, 319 U.S. 436, 438-439 (1943).
Exceptions exist where the creation of the corporation was not
followed by any business activity, the corporation was the agent
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