Frederick H. Jackson III and Pamela S. Jackson - Page 11




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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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