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as a single indebtedness rather than separate indebtedness. See
Cornelius v. Commissioner, 494 F.2d 465, 476 (5th Cir. 1974);
sec. 1.1367-2(a), Income Tax Regs.9
Petitioners contend that the basis of a shareholder’s open
account debt is properly determined at the close of the S
corporation’s tax year by first netting advances and repayments
of open account debt during the tax year and then making any
necessary debt basis adjustments. Respondent relies on Cornelius
v. Commissioner, 494 F.2d 465 (5th Cir. 1974), for the
proposition that Messrs. Brooks must recognize income on the
repayment of their advances to the extent that the repayments
exceed their basis in the advance on the date of repayment,
without regard to the basis of subsequent advances in the year of
repayment.
We believe that respondent’s reliance in the instant case on
Cornelius v. Commissioner, supra, is misplaced. In Cornelius,
the Fifth Circuit Court of Appeals affirmed the finding of this
Court that the advances by the taxpayers to their S corporation
and the repayments of those advances constituted separate and
9Sec. 1.1367-2(a), Income Tax Regs., provides that advances
and repayments of open account debt are treated as a single
indebtedness for the purpose of making debt basis adjustments and
defines open account debt as “shareholder advances not evidenced
by separate written instruments and repayments on the advances”.
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