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equal to the face value of the note and that there was no gain to
recognize under section 357(c). See id. at 496.
Respondent argues that the structure of petitioners’ section
351 transaction was not the same as the structure of the
taxpayers’ transactions in Lessinger and Peracchi in that
petitioners did not contribute loan receivables or personal notes
to Seggerman Farms that would cover the difference between the
transferred liabilities and the adjusted basis of the transferred
property. Petitioners argue that their personal guaranties of
corporate indebtedness are the equivalent of loans receivable or
personal notes to the corporation because they remained liable
for the corporate debt even after the section 351 transaction.
We agree with respondent. Petitioners’ personal guaranties
of corporate debt are not the same as incurring indebtedness to
the corporation because a guaranty is merely a promise to pay in
the future if certain events should occur. Petitioners’
guaranties do not constitute economic outlays. Cf. Estate of
Leavitt v. Commissioner, 875 F.2d 420, 422 (4th Cir. 1989)
(taxpayers experienced no such call as guarantors, engaged in no
economic outlay, and suffered no cost), affg. 90 T.C. 206 (1988);
Brown v. Commissioner, 706 F.2d 755, 756 (6th Cir. 1983) (“the
courts have consistently required some economic outlay by the
guarantor in order to convert a mere loan guaranty into an
investment”), affg. T.C. Memo. 1981-608 (1981). Petitioners are
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