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a loan to petitioner, and whether petitioner ever contributed
$49,000 to Marc.
The parties have stipulated that the books and records of
Silver Glen and Marc indicate that a $49,000 loan from petitioner
to Silver Glen was “reallocated” by adjusting journal entry from
Silver Glen to Marc, which then included this amount in its
“Loans to stockholders” account. Petitioner has not introduced
any evidence, such as canceled checks or bank statements, to show
that he actually disbursed $49,000 of his own funds to Silver
Glen. As previously indicated, mere adjusting journal entries
among petitioner’s wholly owned S corporations are inadequate to
establish that petitioner has made an actual economic outlay to
Marc. Moreover, insofar as the record reveals, Marc’s purported
assumption of Silver Glen’s purported debt was not accompanied by
a novation releasing Silver Glen from liability to petitioner.
Accordingly, if Marc failed to pay the purported debt, petitioner
presumably would have had recourse against Silver Glen; the
continued existence of petitioner’s rights against Silver Glen
negates creation of basis in Marc with respect to the purported
debt. See Hitchins v. Commissioner, 103 T.C. at 717-719.
On his 1997 Federal income tax return, petitioner reported a
$49,000 long-term capital gain from “Recapture of Loan Basis”
with respect to the Silver Glen loan. At most, this tax
reporting might tend to corroborate petitioner’s claim that
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Last modified: May 25, 2011