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taxpayer’s drawing account was not an actual economic outlay
stating:
[The taxpayer’s] bookkeeping maneuvers merely shifted,
on paper, the liability for prior loans. Hennessey’s
debit to * * * [the taxpayer’s] drawing account, and
its subsequent credit to that account and debit to
* * * [the taxpayer’s] undistributed taxable income
account, do not reflect a current economic outlay
entitling * * * [the taxpayer] to increase his basis in
A & L. Although the entries in Hennessey’s books
technically reduced * * * [the taxpayer’s] book equity,
such entries could not, absent liquidation of
Hennessey, leave * * * [the taxpayer] “poorer in a
material sense.” * * * [Shebester v. Commissioner,
supra; citation omitted.]
Furthermore, petitioners’ reliance on Rev. Rul. 75-144,
1975-1 C.B. 277, is misplaced. The Court of Appeals in
Underwood v. Commissioner, 535 F.2d 309 (5th Cir. 1976), noted
the ruling as applied to situations such as is involved here,
stating:
In the ruling [Rev. Rul. 75-144] the obligee on the
shareholder’s note was an outsider, a bank, which stood
ready to enforce the obligation. Hence it was clear at
the time the substitution occurred that at some future
date payment would be required. Here, by contrast, the
obligee on the taxpayers’ demand note was their own
wholly-owned corporation. * * * [Underwood v.
Commissioner, supra at 312 n.2.]
After considering the reasoning set forth in the cases
discussed above and the dearth of evidence establishing the
substance of the transactions between SLPC, TPC, and Rose, we
conclude that the only intended economic effect of these
transactions was to enable the Roses to deduct losses from SLPC
on their joint income tax returns for 1994 and 1995 that they
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