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Respondent contends that neither Gregory nor Deborah made an
economic outlay with regard to loan 91850.
Petitioner shareholders’ argument depends upon a faulty
premise. Petitioner shareholders contend that although
Christopher and Brenda purchased the warehouse and titled it in
their names, Christopher and Brenda actually held the warehouse
as nominees for the three siblings. Because the warehouse was
used as security for the loan, petitioner shareholders argue
that, as the legal and/or equitable owners of the warehouse, they
are entitled to increase their respective bases in Cox Tomato by
the amount of the loan.
Whether petitioner shareholders jointly owned the warehouse
is not controlling here. A shareholder who uses individually
owned property to secure corporate debt has not necessarily made
an economic outlay requiring an increase in his adjusted basis
under section 1366(d)(1). Perry v. Commissioner, supra at 1296;
Raynor v. Commissioner, supra at 770-771; Guerrero v.
Commissioner, supra. Economic outlay requires a contribution of
cash or property in exchange for the stock of the corporation or
the creation of an indebtedness owed by the corporation to the
shareholder. Estate of Leavitt v. Commissioner, supra at 422-
423. As we stated in Raynor v. Commissioner, supra at 770-771:
No form of indirect borrowing, be it guaranty, surety,
accommodation, comaking or otherwise, gives rise to
indebtedness from the corporation to the shareholders
until and unless the shareholders pay part or all of
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