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interest-bearing promissory note from Innovative to Jerry dated
May 22, 1996, as evidence of Ram’s and Innovative’s direct
indebtedness to Jerry.
The form of this transaction supports a conclusion that
there was an investment or loan by American in or to Ram. As a
mere guarantor of the American debt, Jerry may neither increase
his basis in American, Estate of Leavitt v. Commissioner, 90 T.C.
206 (1988), nor increase his basis in Ram by virtue of American’s
investment and his partial ownership of American, Frankel v.
Commissioner, 61 T.C. 343 (1973), affd. without published opinion
506 F.2d 1051 (3d Cir. 1974). In these circumstances,
petitioners failed to meet their burden of proving that American
advanced funds to Ram as Jerry’s agent, that direct indebtedness
from Ram to Jerry resulted from American’s endorsing the Emerald
check to Ram, or that Jerry made the required economic outlay.
Jerry may not increase his basis in Ram by the $120,000 advanced
to Ram (a portion of the $300,000 advanced). Nor may he increase
his basis in Innovative by $30,000 as a result of this
transaction.
7/10/96 Payment
Petitioners assert that the Mattel check issued to Inter-Con
was to repay part of Mattel’s indebtedness to Jerry. The parties
have stipulated that initially the transaction was reflected on
Mattel’s books as a $200,000 reduction to a note payable to TSI.
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