Mark O. Kaplan - Page 10

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          III.  Bank Loan Proceeds                                                    
               At the end of 1997, petitioner borrowed $800,000 from the              
          Bank.  Contemporaneously, petitioner purportedly lent Marc                  
          $800,000, by writing a check for $800,000 to Marc, which                    
          contemporaneously wrote checks totaling $800,000 to Lakeview and            
          Pleasant Prairie, which shortly thereafter paid $800,000 to                 
          petitioner, who used the funds to pay off the Bank note, 11 days            
          after its creation.  The issue is whether petitioner made any               
          economic outlay to Marc so as to create basis therein.                      
               In Oren v. Commissioner, T.C. Memo. 2002-172, affd. 357 F.3d           
          854 (8th Cir. 2004), the Courts considered a circular funds-                
          juggling arrangement similar to that involved in the instant                
          case.  In Oren, the taxpayer borrowed funds from an S                       
          corporation, Dart Transit Co. (Dart), which he controlled and               
          owned a majority interest in.  The taxpayer then lent these funds           
          to his two wholly owned S corporations; over time, these S                  
          corporations lent the funds back to Dart.  This Court held that             
          the loan transactions had no net economic effect, noting that the           
          loan proceeds originated and ended with Dart.  This Court stated:           
          “The only significance of the transactions was the circular route           
          of the various checks and the wire transfer and the execution of            
          promissory notes.  The economic positions of the parties did not            
          change.”  Id.  Concluding that the circular loans involved no               
          actual economic outlay, this Court disallowed the taxpayer’s                






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