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schedules of balance sheet information for those years do reflect
the loans; however, they show the loans as having been made from
Dart to HL and from HL to Dart. See supra note 5. Mr. Oren’s
involvement in the loans is not shown. The 1993 and 1994
financial statements of the Dart companies certainly support
respondent’s position that Mr. Oren was a mere conduit among
Dart, HL, and HS.19
We hold that Mr. Oren did not make an actual economic outlay
to HL and HS. Accordingly, the increase in Mr. Oren’s basis in
the S corporations, attributable to the loans, was limited to
$200,000, the amount lent from Mr. Oren’s personal assets.20
Issue 2
The second issue for decision is whether for purposes of
section 465 petitioners were at risk for the amounts lent to the
19Only the 1995 financial statements note Mr. Oren’s
involvement in the various loans. On the 1995 combined balance
sheet, Mr. Oren’s $200,000 loan to HL and HS from his personal
resources is reflected; his role with respect to the loan amounts
that originated with Dart is not listed. The combined schedule
of balance sheet information for 1995 does note Mr. Oren’s
involvement with respect to those amounts: Dart is shown to hold
a “Notes payable-stockholder” of $15.3 million and HL and HS are
shown to owe “Notes payable-stockholder” of $13.5 million and $2
million. See supra note 6. Petitioners have not explained why
the methodology employed in the 1995 combined schedule differs
from that employed on the 1993 and 1994 combined schedules.
Certainly, the form of the loans in 1993, 1994, and 1995 was
identical. We are at a loss in identifying any nontax reasons
why the methodology for the 1995 schedule was so abruptly
changed.
20In the notice of deficiency, respondent has recognized
this $200,000 increase in basis.
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