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insignificant. The parties were in exactly the same position
before the interest payments as they were afterwards.
Petitioners point to our decision in Gilday v. Commissioner,
T.C. Memo. 1982-242, and emphasize that direct shareholder loans,
like the loans in this case, create basis. Petitioners argue
that the facts in that case are similar to those herein. In
Gilday, the taxpayers substituted their own personal note for the
note of an S corporation that had been executed in favor of a
third-party bank. This Court found that the taxpayers had become
primary obligors on the loan obligation to the bank and allowed
the taxpayers to increase their basis accordingly. Id.
However, “the involvement of an independent third party
lender” was essential to the result reached in Gilday v.
Commissioner, supra. Bergman v. United States, 174 F.3d at 933.
In this case, the “lender”, Dart, was a controlled entity. Mr.
Oren owned all the voting stock and a majority of the nonvoting
stock, and, further, Mr. and Mrs. Oren were the only directors of
Dart and acted as its president/treasurer and executive vice
president/secretary, respectively. Petitioners argue that a
third-party lender is not required where there is a direct loan
to an S corporation. We agree with the rationale in Bergman v.
United States, supra, and hold that a third-party lender is
generally required. With a third-party lender, “there is no
question that * * * [the] lender * * * intends to force
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