- 29 -
Respondent in addition points out that MMS was the recipient
of the loan proceeds and the expected source of repayment, citing
authorities where these factors contributed to a finding that no
basis was generated by the indebtedness. While these factors have
been cited by courts, it has generally been in situations where
the taxpayer and his S corporation were co-obligors on the
indebtedness, or the taxpayer was claiming basis notwithstanding
his status as a mere guarantor or surety. See, e.g., Estate of
Leavitt v. Commissioner, 90 T.C. 206 (1988), affd. 875 F.2d 420
(4th Cir. 1989); Borg v. Commissioner, 50 T.C. 257 (1968); Salem
v. Commissioner, T.C. Memo. 1998-63, affd. 196 F.3d 1260 (11th
Cir. 1999); Reser v. Commissioner, T.C. Memo. 1995-572, affd. in
part and revd. in part on another ground 112 F.3d 1258 (5th Cir.
1997). In any event, the use of the loan proceeds by the
corporation is far from dispositive; the loan proceeds were
intended for and used by the corporations in the back-to-back loan
and note substitution arrangements in Raynor v. Commissioner, 50
T.C. 762 (1968), and Gilday v. Commissioner, T.C. Memo. 1982-242,
cases where the indebtedness was held to generate basis. As for
22(...continued)
assignment to Huntington of all the other MMS assets pledged to
him as security for the MMS/Miller Loan (which assets had
previously secured the MMS/Huntington Loan). The taxpayer in
Bolding v. Commissioner, 117 F.3d 270 (5th Cir. 1997), revg. T.C.
Memo. 1995-326, was treated as the true borrower notwithstanding
that the assets acquired by his S corporation with the loan
proceeds were pledged as security for the taxpayer's loan.
Page: Previous 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 NextLast modified: May 25, 2011