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D. Discussion
1. The Economic Outlay Requirement
Respondent’s principal argument is that petitioners failed
to satisfy the requirement, referred to in a number of cases,
e.g., Bergman v. United States, supra at 932; Hitchins v.
Commissioner, 103 T.C. at 715, that an increased basis in an S
corporation must entail an “actual economic outlay” by the
shareholder taxpayer. In respondent’s view, that requirement is
met only if the taxpayer invests in or lends to the S corporation
his own funds, or funds borrowed from an unrelated party, to whom
he is personally liable. We reject that view. As we made clear
in Yates v. Commissioner, supra, and Culnen v. Commissioner,
supra, the fact that funds lent to an S corporation originate
with another entity owned or controlled by the shareholder of the
S corporation does not preclude a finding that the loan to the S
corporation constitutes an “actual economic outlay” by the
shareholder.
It is not unusual for an individual to conduct multiple
businesses through multiple entities, some or all of which are
passthrough entities (e.g., S corporations or partnerships). Nor
is it unusual for one or more of those entities to be profitable
and one or more to be unprofitable. Where the loss entity is an
S corporation, we find no categorical rule, under section
1366(d)(1)(B), the regulations thereunder, see sec. 1.1366-2(a),
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