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the years under consideration. So there was a decidedly large
flow of capital to petitioner from November, rather than the
opposite. Petitioner did, however, recognize $79,768 and $20,099
of passthrough income from November, as reflected in Forms 1120S
for 1989 and 1990 tax years.
Petitioner does not rely on contributions made directly to
November to counter respondent’s argument. Petitioner contends
that the $1.5 million note to Krieger, on which both petitioner
and November were shown as obligors, made him personally liable
and would therefore constitute basis in November. Respondent
contends that petitioner is merely a guarantor and, under the
circumstances of this case, should not be permitted S corporation
basis attributable to the note. The note to Attorney Krieger
cannot be fully understood without reference to the integral
accompanying agreement between the parties. In that agreement it
is made clear that but for the success in settlement of the
lawsuit, petitioner and November would have been “bankrupt”.
Significantly, the note is only to be paid from income of
November’s bingo business. For example, it was agreed if the
laws change to prohibit bingo, Krieger would “receive no
payments” on the note. More particularly, the payment on the
note to Krieger was dependent on November and the profitability
of its bingo business, and Krieger did not look to petitioner,
individually, for payment. Accordingly, in this setting,
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