- 7 -
On July 1, 1991, Dart, Fleetline, HS, and HL entered into a
credit agreement with First Bank National Association (First
Bank), which provided for a letter of credit, a revolving note,
and a security agreement. The credit agreement restricted
distributions from the Dart companies to petitioners’ expected
tax liability plus 10 percent of net income. On August 16, 1993,
the agreement was amended to allow distributions to petitioners
so long as they made equivalent cash contributions to one of the
other Dart companies. The agreement also stated:
Section 6.10 Investments. No Borrower [any of the
Dart Companies] will acquire for value, make, have or
hold any Investments, except:
* * * * * * *
6.10(f) Loans by Dart to Donald G. Oren, but only
so long as contemporaneous loans of equal amount from
Donald G. Oren to another Borrower remain outstanding.
Beginning in 1992, HL purchased additional trailers for use
in its business. The trailers would have given rise to
depreciation deductions that would have exceeded Mr. Oren’s basis
in his S stock. Mr. Oren would have been unable to deduct the
full amount of the losses as a result of section 1366(d), which
limits losses to the sum of a shareholder’s basis in the S
corporation stock and the shareholder’s basis in indebtedness of
the S corporation to the shareholder. Mr. Oren was advised by
his tax advisers to “restructure” his financial investments in
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