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surely have triggered a demand by Mr. Oren of HL and HS.
Assuming a demand by HL or HS of Dart, the entire series of
demands would simply offset, leaving the parties exactly where
they started. Any demands for repayment would have been futile,
because each party would have had equivalent rights of demand
against other parties in the circular chain of obligations.16
The loans in this case were nothing more than a tripartite,
interconnected arrangement that, as a practical matter, would not
have given rise to an obligation on the part of Mr. Oren to repay
from his personal resources.
Petitioners also argue that the Dart minority shareholders
had rights under Minnesota law allowing them to recover on the
loans made from Dart to Mr. Oren.17 Petitioners contend that the
minority shareholders would have forced Mr. Oren to repay the
loans, even if HL or HS were unable to repay their loans to Mr.
Oren. We disagree. A demand for repayment on the part of the
minority shareholders of Dart would surely have triggered a
demand on HL or HS for repayment which would in turn trigger
16Compare this result to the facts in Gilday v.
Commissioner, T.C. Memo. 1982-242. After the substitution of
notes, the taxpayers, as primary obligors, would have to repay
the loans whether the S corporation was or was not able to supply
the taxpayers with equivalent amounts. In that case, the
taxpayers might truly have to repay with personal funds.
17Petitioners cite to Minn. Stat. Ann. sec. 302A.467 (West
1985) and Minn. Stat. Ann. sec. 302A.751 (West Supp. 2001), which
discuss equitable relief and shareholder suits.
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