- 28 -
assertion that the combined balance sheets were made stronger by
the loan transactions adopted, without more, is insufficient.
Indeed, at trial, Mr. Oren was unable to explain exactly how the
balance sheets were made stronger as a result of the loan
transactions. Further, the combined balance sheets of the Dart
companies do not reflect the various loan obligations as assets
of the corporations. In fact, the obligations simply offset one
another on the combined schedule of balance sheet information.
See supra notes 5 and 6. We cannot see how the combined balance
sheets were strengthened, or could even be perceived as
strengthened by Mr. Oren or any financial institution.
We agree with respondent that Mr. Oren was nothing more than
a “conduit through which Dart funneled money to HL and HS and
back to itself.”18 The financial statements compiled for Mr.
Oren and for the Dart companies are consistent with this finding.
Mr. Oren’s financial statements for 1993 and 1995 do not list the
loans from Dart to Mr. Oren or the loans from Mr. Oren to HL and
HS. The combined balance sheets of the Dart companies for 1993
and 1994 do not reflect the loan transactions. The combined
18In such a case, shareholders cannot claim an increase in
basis for the entity investment, even if the entity is controlled
or wholly owned. Estate of Bean v. Commissioner, 268 F.3d 553,
556-557 (8th Cir. 2001), affg. T.C. Memo. 2000-355; Bergman v.
United States, 174 F.3d 928, 932 (8th Cir. 1999) (“No basis is
created for a shareholder, however, when funds are advanced to an
S corporation by a separate entity, even one closely related to
the shareholder.”).
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