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In Selfe, the Court of Appeals for the Eleventh Circuit
concluded that “under the principles of Plantation Patterns, a
shareholder who has guaranteed a loan to a Subchapter S
corporation may increase her basis [in her stock in the S
corporation] where the facts demonstrate that, in substance, the
shareholder has borrowed funds and subsequently advanced them to
her corporation.”2 Selfe v. United States, supra at 773.
On brief respondent argues that petitioner has made no
capital contribution to the corporation since petitioner has made
no “actual economic outlay”:
It is a well established principle that a
shareholder who guarantees the debt of a subchapter S
corporation is not entitled to an increase in basis by
the amount of the guaranteed loan. Goatcher v. United
States, 944 F.2d 747 (10th Cir. 1991); Underwood v.
Commissioner, 63 T.C. 468 (1975). Courts in almost
every case that have dealt with this issue, have held
that a shareholder who guarantees a debt of a
subchapter S corporation must sustain some economic
outlay. Absent an economic outlay a shareholder is not
entitled to an increase in basis. Estate of Leavitt v.
Commissioner, 90 T.C. 206 (1988).
IV. Discussion
A. Introduction
It is often necessary to determine whether a particular
interest in a corporation is to be treated for Federal income tax
2 The Court of Appeals for the Eleventh Circuit treated
Plantation Patterns, Inc. v. Commissioner, 462 F.2d 712 (5th Cir.
1972), as precedential, based on Bonner v. City of Prichard, 661
F.2d 1206, 1209 (11th Cir. 1981) (Court of Appeals for the
Eleventh Circuit adopted as precedent decisions of the Court of
Appeals for the Fifth Circuit rendered prior to Oct. 1, 1981).
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