- 24 -
v. Commissioner, T.C. Memo. 2002-172. As in Gilday, a principal
motivation for the note substitution was to generate basis for
purposes of section 1366(d)(1)(B).19
Similarly, the two subsequent $250,000 increases in the
respective credit lines extended by Huntington to petitioner and
by petitioner to MMS on February 15, 1993, and January 19, 1994,
followed the format of back-to-back loans that were held to create
basis in Raynor v. Commissioner, supra. See also Bolding v.
Commissioner, supra; Yates v. Commissioner, supra; Culnen v.
Commissioner, supra. That is, petitioner borrowed the additional
amounts from Huntington and immediately re-lent them to MMS, with
the indebtedness between petitioner and Huntington, and between
MMS and petitioner, fully documented.
Therefore, petitioner made an economic outlay, which left him
poorer in a material sense, by virtue of becoming the fully
recourse obligor on enforceable debt held by an independent,
19 Petitioners argue in addition that the restructuring of
the line of credit also enabled Huntington to remove the
indebtedness from its internal "watch list". However, we find
that the bank officer's testimony on this point is too uncertain,
and the claim itself too improbable, to persuade us that the
substitution of petitioner (who lacked substantial net worth) for
MMS as the primary obligor to Huntington caused the loan to be
removed from the watch list. A much more plausible explanation
for the removal from the watch list, in our view, was the
addition of the fully collateralized guaranties of the Rapp
Group, which covered the full amount of the outstanding
indebtedness.
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