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Petitioner, a shareholder in Green Valley Sawmills, Inc.
(Green Valley), an S corporation, guaranteed to creditors of
Green Valley that he would repay Green Valley’s debts if Green
Valley did not repay them. After concessions, the sole issue for
decision is whether an amount equal to those guaranties is
included in petitioner’s basis in his Green Valley stock. We
hold that petitioner’s basis does not include the amount of those
guaranties.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
A. Petitioners
Petitioners are married and resided in Windsor, California,
when they filed their petition in this case. Petitioner had been
in the business of purchasing logs, timber land, and lumber for
more than 25 years as of the time of trial.
B. Green Valley Sawmills
In 1995, petitioner, Richard Priest, and Dean Rose formed
Green Valley, an S corporation, to provide a livelihood for
themselves. Petitioner contributed capital of about $27,000 to
Green Valley when it was formed. Petitioner was president of
Green Valley. Petitioner owned one-third of the stock of Green
Valley in 1996 and 42.03 percent of the stock in 1997.
Green Valley bought logs from Hanes Ranch, Inc. (Hanes
Ranch), Miller Trust, Charles Hyatt, Gregg Koppala, Koppala Cook,
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