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On December 6, 1999, respondent issued a notice of deficiency for
taxable years 1993, 1994, and 1995 in which he determined:
7.A. Loss on Highway Leasing
The deductions of $4,000,000, $4,614,944, and
$5,605,248, shown on your returns for the taxable years
1993, 1994, and 1995, respectively, as losses from
Highway Leasing are not allowable for 1993 and 1994 and
is reduced by $4,785,056 for 1995 because the loans
from Dart Transit through Donald Oren to Highway
Leasing and then back to Dart Transit do not create
indebtedness and at-risk basis. Accordingly, your
taxable income is increased $4,000,000 for 1993,
$4,614,944 for 1994, and $4,785,056 for 1995.
7.B. Loss on Highway Sales
The deduction of $2,046,251 shown on your return for
1995 as a loss from Highway Sales is reduced by
$1,900,000 because the loans from Dart Transit through
Donald Oren to Highway Sales, Inc. and then back to
Dart Transit do not create indebtedness and at-risk
basis. Accordingly, your taxable income is increased
$1,900,000 for 1995.
OPINION
Issue 1
The first issue for decision is whether petitioners’ basis
in the indebtedness of two wholly owned S corporations was
increased under section 1366(d) as a result of certain direct
loans made by petitioners to those entities. Generally, it is
the burden of the taxpayer to establish his basis in the S
corporation under section 1366(d).9 Estate of Bean v.
Commissioner, 268 F.3d 553, 557 (8th Cir. 2001), affg. T.C. Memo.
9Petitioners do not argue that sec. 7491(a) applies, and it
is otherwise unclear when the examination by respondent
commenced. We find sec. 7491(a) is not applicable to this case.
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