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mined with regard to paragraphs (1) and
(2)(A) of section 1367(a) for the taxable
year), and
(B) the shareholder’s adjusted basis of
any indebtedness of the S corporation to the
shareholder (determined without regard to any
adjustment under paragraph (2) of section
1367(b) for the taxable year).
For each of the taxable years at issue, each petitioner had
a zero basis in the TGC stock that each owned.4 Respondent is
thus wrong in asserting on brief that the “net effect on peti-
tioners is the same whether the depreciation deduction is taken
on Schedule C or flowed through to them [from TGC, an S corpora-
tion].”
We turn now to petitioners’ position that for purposes of
determining any depreciation deductions allowable with respect to
the computer simulator “TG&C is an S-corporation, [and] the
simulation equipment, which was a gift for [sic] the company,
represents a gift to its stockholders.” As support for petition-
ers’ position, petitioners point to section 25.2511-1(c)(1) and
(g)(1), Gift Tax Regs.5 Petitioners’ reliance on those regula-
4Petitioners do not contend, and the record does not estab-
lish, that for each of the taxable years at issue they had any
basis in any indebtedness of TGC to them.
5Petitioners may have intended to rely on sec. 25.2511-
1(h)(1), Gift Tax Regs., and not sec. 25.2511-1(g)(1), Gift Tax
Regs., for their position that any gift of the computer simulator
that SDC made to TGC was a gift to petitioners as the stockhold-
ers of TGC. Our response to any such reliance by petitioners on
sec. 25.2511-1(h)(1), Gift Tax Regs., is the same as our response
(continued...)
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