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to petitioner’s 1997 tax year. See sec. 1366(d)(2). Petitioner
took certain steps, as described below, to attempt to create
adjusted basis in Marc to enable him to deduct the Marc loss in
1997.
Petitioner Borrows $800,000 From the Bank
On December 29, 1997, petitioner borrowed $800,000 from
Manufacturers Bank (the Bank), evidenced by his promissory note
(the note) of the same date. The note’s maturity date was
January 30, 1998. When he executed the note, petitioner prepaid
$1,000 of finance charges to the Bank.
When he applied for the loan, petitioner did not provide the
Bank any financial statement, and he had no preexisting
relationship with the Bank. The note was collateralized by two
Bank deposit accounts (the deposit accounts), one owned by
Lakeview and the other owned by Pleasant Prairie. The deposit
accounts were opened for the sole purpose of facilitating the
loan between petitioner and the Bank. When petitioner executed
the note, the deposit accounts had zero balances.
Petitioner Pays $800,000 to Marc
Contemporaneously with the Bank loan, petitioner issued Marc
an $800,000 check drawn on his account at the Bank. Marc
deposited the check in its account at the Bank.
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