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advanced the funds and is closely related to the taxpayer does not
satisfy the statutory requirements. Frankel v. Commissioner, 61
T.C. 343 (1973), affd. without published opinion 506 F.2d 1051 (3d
Cir. 1974); Burnstein v. Commissioner, T.C. Memo. 1984-74.
Furthermore,
No form of indirect borrowing, be it a guaranty, surety,
accommodation, comaking or otherwise, gives rise to
indebtedness from the corporation to the shareholders
until and unless the shareholders pay part or all of the
existing obligation. Prior to that crucial act,
“liability” may exist, but not debt to the shareholders.
[Raynor v. Commissioner, 50 T.C. 762, 770-771 (1968).]
Basis-generating "direct" indebtedness of the S corporation
to the shareholder for purposes of section 1366(d)(1)(B) generally
arises when a shareholder makes a loan to his S corporation. That
a shareholder may fund his loan to the S corporation with money
borrowed from a third-party lender does not alter the tax
consequences. Bolding v. Commissioner, 117 F.3d 270 (5th Cir.
1997), revg. T.C. Memo. 1995-326; Underwood v. Commissioner, supra
at 312 n.2; Hitchins v. Commissioner, supra at 718 & n.8; Raynor
v. Commissioner, supra at 771. However, where the source of the
funding for such "back-to-back" loans is a related party instead
of an independent third-party lender, this and other courts have
often found that a shareholder made no economic outlay sufficient
to create basis since the necessity of the shareholder's repayment
of the funds is uncertain, see, e.g., Oren v. Commissioner, 357
F.3d 854 (8th Cir. 2004), affg. T.C. Memo. 2002-172; Underwood v.
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