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When Messrs. Brooks made the $2.2 million advance at the
close of 2000, it was an amount sufficient, in Messrs. Brooks’s
view, to (1) provide a basis offset for the $1.6 million
repayment and (2) allow for the recognition by Messrs. Brooks of
their pro rata share of company losses during 2000.4
Respondent concedes that Messrs. Brooks’s advances to the
company and the company’s repayments of the advances constituted
open account debt and does not contend that any of the advances
constituted separate indebtedness. Other than the advances
described above, Messrs. Brooks advanced no money to the company
from 1997 to December 31, 2000.
Discussion
We must decide whether the $1.6 million advance provided
sufficient basis to offset the $1 million repayment on January 5,
1999, in addition to allowing recognition of Messrs. Brooks’s pro
rata share of company losses for 1999, and whether the $2.2
3(...continued)
an open account advance subsequent to the repayment. However,
respondent does not dispute that the $1 million advance provided
Messrs. Brooks with sufficient bases to recognize their
respective pro rata losses for 1999.
4Petitioners contend that Messrs. Brooks’s bases in the open
account debts were also reduced by offsetting the $1,600,000
repayment. As discussed below, respondent contends that the
repayment of open account debt may not be offset by the basis of
an open account advance subsequent to the repayment. However,
respondent does not dispute that the $1,600,000 advance provided
Messrs. Brooks with sufficient bases to recognize their
respective pro rata losses for 2000.
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