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When an S corporation shareholder is only indirectly liable
for a corporate debt, that shareholder has not transferred any
cash or property to the S corporation or created corporate
indebtedness owed to him until and to the extent the shareholder
actually pays the debt. Raynor v. Commissioner, 50 T.C. 762,
770-771 (1968). For example, if a shareholder of an S
corporation simply guarantees a corporate debt, that guaranty
does not constitute an economic outlay, and the shareholder is
not entitled to increase his basis in the S corporation as a
result of the guaranty. Goatcher v. United States, supra; Estate
of Leavitt v. Commissioner, supra. When, however, a shareholder
obtains a personal loan and transfers some or all of the loan
proceeds to the S corporation, he has made an economic outlay and
is entitled to increase his basis in the S corporation in an
amount equal to the amount transferred to the S corporation. See
Prashker v. Commissioner, 59 T.C. 172, 176 (1972).
With these principles in mind, we examine the transactions
that petitioner shareholders contend entitle them to an increase
in their S corporation bases.
A. 91850 Loan for $220,000
1. Basis Apportionment Among Petitioner Shareholders
Petitioner shareholders first contend that loan 91850 should
increase each of their bases because they each made an economic
outlay in that the loan was secured with jointly owned property.
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