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Edward P. Phillips and Linda L. Snelling, for petitioners.
Reginald R. Corlew, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HALPERN, Judge: By notice of deficiency dated March 23,
1998 (the notice), respondent determined deficiencies in
petitioners’ Federal income taxes as follows:
Year Deficiency
1994 $6,057
1995 5,786
1996 8,038
Petitioners are husband and wife who, for the tax (calendar)
years here in issue, made a joint return of income. During such
years, petitioner husband (petitioner) was a shareholder in an “S
corporation”, as that term is defined in section 1361(a). The
issue for decision is whether, on account of petitioner’s
guaranty of certain indebtedness of that corporation,
petitioner’s adjusted basis in his stock of the corporation
exceeded zero. If it did, then petitioner would be entitled to
deduct some or all of his pro rata share of the losses of the
corporation. For the reasons that follow, we find that, despite
such guaranty, petitioner’s adjusted basis in his stock did not
exceed zero. Therefore, petitioner cannot deduct the losses in
question.
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
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