William H. Maloof - Page 2

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          party made to the S corporation.  Resolving this issue depends on           
          whether petitioner made an economic outlay regarding this loan to           
          allow petitioner to increase his basis in the S corporation.  We            
          hold that he did not.                                                       
                                  FINDINGS OF FACT                                    
               The parties have stipulated some facts.  The stipulation of            
          facts and the accompanying exhibits are incorporated by this                
          reference and are so found.                                                 
               Petitioner is the sole shareholder of several S corporations           
          involved in the propane gas industry.  One S corporation, Level             
          Propane, Petroleum & Gases Co., an Ohio corporation (Level                  
          Propane),1 generated the losses petitioner claimed as passthrough           
          deductions in this case.  Level Propane provided propane gas to             
          rural areas in Ohio initially, then expanded into neighboring               
          States.  At its peak, Level Propane provided propane gas and                
          services to customers in 14 States and had about 600 employees              
          who generated approximately $18 million in annual revenues.                 
               Level Propane required increasingly large infusions of                 
          capital to sustain its growth.  Level Propane’s capital needs               
          were funded initially with transfers from various S corporations            
          in which petitioner owned all the shares.  Eventually Level                 
          Propane obtained financing from commercial lenders.  The specific           

               1Neptune Propane, Inc., merged into Level Propane during               
          1993.  Throughout this opinion references to Level Propane will             
          include Neptune to the extent relevant.                                     

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