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of the $4 million loan. We must therefore determine whether
petitioner may increase his basis in the S corporation by the
amount of the $4 million loan so petitioner may deduct
passthrough operating losses of the S corporation.
OPINION
Petitioner and respondent differ on the effect of the $4
million loan the bank made to Level Propane. Petitioner argues
that he is entitled to increase his basis in the stock of Level
Propane by the amount of the loan for three reasons. First,
petitioner argues that he is entitled to an increase in basis in
Level Propane because he personally guaranteed the loan. Second,
petitioner argues that he is entitled to increase his basis in
Level Propane because he pledged stock to secure the loan.
Regarding this second argument, petitioner implies that Eleventh
Circuit precedent compels a different result from our own
caselaw. Third, petitioner argues that he is entitled to
increase his basis in Level Propane because he incurred a cost
when he lost “control” of Level Propane.
Respondent counters that neither petitioner’s guaranty, the
pledged stock, nor the bank’s “control” over Level Propane
constituted an economic outlay. Respondent also argues that
Eleventh Circuit caselaw does not compel a different result.
We address the parties’ contentions in turn. First, we
state the general rules governing when a shareholder of an S
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