Frederick H. Jackson III and Pamela S. Jackson - Page 10

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               In pertinent part, section 1011 provides that the adjusted             
          basis of property shall be the basis of such property determined            
          under section 1012.                                                         
               In pertinent part, section 1012 provides that the basis of             
          property shall be the cost of such property.                                
          III.  Arguments of the Parties                                              
               Petitioners argue:  “The application of traditional debt-              
          equity principles results in the characterization of Petitioner-            
          husband’s loan guarantees as a capital contribution to his                  
          Corporation.”  Petitioners rely, in particular, on two cases:               
          Plantation Patterns, Inc. v. Commissioner, 462 F.2d 712 (5th Cir.           
          1972), and Selfe v. United States, 778 F.2d 769 (11th Cir. 1985).           
               In Plantation Patterns, the Court of Appeals for the Fifth             
          Circuit determined that, because of the meager capital position             
          of the nominal borrower corporation (a C corporation), lenders to           
          that corporation were relying on the indirect shareholder’s                 
          guaranty of the corporate debt to give borrowing power to the               
          corporation.  See Plantation Patterns, Inc. v. Commissioner,                
          supra at 722–723.  Since the nominal borrower corporation lacked            
          borrowing power, the Court of Appeals determined that the                   
          indirect shareholder was the real borrower, with the guaranty               
          simply amounting to a covert way for him to put his money “at the           
          risk of the business”.  Id.                                                 

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