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shareholder’s deduction, however, is limited to his basis in the
S corporation’s stock and in any debt the corporation may owe him
(hereinafter referred to, in the aggregate, as basis in an S
corporation). Sec. 1366(d)(1).7 A taxpayer may increase his
basis in an S corporation only if he makes an additional economic
outlay to or for the benefit of the S corporation. Goatcher v.
United States, 944 F.2d 747, 751 (10th Cir. 1991); Estate of
Leavitt v. Commissioner, 875 F.2d 420, 422 (4th Cir. 1989) (“To
increase the basis in the stock of a subchapter S corporation,
there must be an economic outlay on the part of the
shareholder.”), affg. 90 T.C. 206 (1988); Guerrero v.
Commissioner, T.C. Memo. 2001-44 (“In order to increase the basis
in the indebtedness of an S corporation, there must be an
economic outlay on the part of the shareholder.”). An economic
outlay for this purpose is an actual contribution of cash or
property by the shareholder to the S corporation or a transaction
that leaves the S corporation indebted to the shareholder. Sec.
1366(d)(1); Estate of Leavitt v. Commissioner, supra at 423. The
economic outlay must leave “‘the taxpayer poorer in a material
sense’” after the transaction than when the transaction began.
Perry v. Commissioner, 54 T.C. 1293, 1296 (1970) (quoting Horne
v. Commissioner, 5 T.C. 250, 254 (1945)).
7Losses in excess of basis may be carried forward to any
subsequent year in which a shareholder has basis in the S
corporation’s stock or debt. Sec. 1366(d)(2).
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