- 14 -
(3) the guarantors contributed such sums to the capital of the
corporation, and (4) such contribution by petitioner resulted in
an increase in petitioner’s adjusted basis in his stock under
section 1012.5 Therefore, argue petitioners, petitioner had an
adequate basis under section 1366(d)(1)(A) to allow him to deduct
the losses. Petitioners specifically disclaim that they are
asking us to find that the guaranty increased any indebtedness of
the corporation to petitioner (which would bring into operation
section 1366(d)(1)(B)).
5 Petitioners do not cite, but apparently rely on, sec.
1.118-1, Income Tax Regs., to establish a cost basis in
petitioner’s shares on account of such deemed capital
contribution. In pertinent part, sec. 1.118-1, Income Tax Regs.,
provides:
Contributions to the capital of a corporation.-–* * *
if a corporation requires additional funds for
conducting its business and obtains such funds through
voluntary pro rata payments by its shareholders, the
amounts so received being credited to its surplus
account or to a special account, such amounts do not
constitute income, although there is no increase in the
outstanding shares of stock of the corporation. In
such a case the payments are in the nature of
assessments upon, and represent an additional price
paid for, the shares of stock held by the individual
shareholders, and will be treated as an addition to and
as a part of the operating capital of the company.
* * * [Emphasis added.]
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011