- 134 -
and TPC. The stipulation neither establishes that these
transactions had economic substance nor that these transactions
gave rise to a bona fide debt between SLPC and Rose.
An S corporation shareholder must make an actual economic
outlay to the S corporation in order to increase the basis of his
or her interest in the S corporation. Bergman v. United States,
174 F.3d 928, 932 (8th Cir. 1999); see also Selfe v. United
States, 778 F.2d 769, 772 (11th Cir. 1985); Underwood v.
Commissioner, 535 F.2d 309, 311-313 (5th Cir. 1976), affg. 63
T.C. 468 (1975); Hitchins v. Commissioner, 103 T.C. 711, 715
(1994). A shareholder makes an actual economic outlay to an
S corporation by engaging in a transaction that leaves “‘the
taxpayer poorer in a material sense’” when fully consummated.
Perry v. Commissioner, 54 T.C. 1293, 1296 (1970) (quoting
Horne v. Commissioner, 5 T.C. 250, 254 (1945)), affd. 27 AFTR 2d
71-1464, 71-2 USTC par. 9502 (8th Cir. 1971).
Petitioners have failed to address the myriad cases
involving transactions factually similar to or indistinguishable
from the transactions between SLPC, TPC, and the Roses during
1994 and 1995. See, e.g., Underwood v. Commissioner, supra;
Bhatia v. Commissioner, T.C. Memo. 1996-429; Wilson v.
Commissioner, T.C. Memo. 1991-544; Griffith v. Commissioner, T.C.
Memo. 1988-445; Shebester v. Commissioner, T.C. Memo. 1987-246.
For example, in Underwood v. Commissioner, supra, the taxpayers
Page: Previous 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 NextLast modified: May 25, 2011