Estate of Leavitt v. Commissioner
United States Tax Court
Ps were shareholders in V, an electing small business corporation under subch. S of the Internal Revenue Code. Ps guaranteed a loan issued by a bank to V. At the time the loan was made, V's liabilities exceeded its assets, and V was unable to meet its cash-flow requirements. The loan was issued by the bank only because of Ps' financial strength.
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Ps were shareholders in V, an electing small business corporation under subch. S of the Internal Revenue Code. Ps guaranteed a loan issued by a bank to V. At the time the loan was made, V's liabilities exceeded its assets, and V was unable to meet its cash-flow requirements. The loan was issued by the bank only because of Ps' financial strength. However, all payments of principal and interest on the loan were made by V. Held, absent an economic outlay by Ps, Ps' guarantees of the loan do not increase their basis in their stock in V. Brown v. Commissioner, 706 F.2d 755 (6th Cir. 1983), affg.…
1DissentFay, J.
The majority opinion holds that petitioners’ guarantees do not increase the amount of their section 1374(c)(2) limitations. The majority opinion errs by not recognizing the applicability of traditional debt-equity principles in determining the Federal tax effect of petitioners’ guarantees and by not recognizing the existence and presence of the type of economic outlay proven by petitioners. Before addressing these errors, I will first discuss the distinctions between section 1374(c)(2)(A) and section 1374(c)(2)(B), distinctions which the majority does not fully address.
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2Cases cited38 opinions
- Jack E. Golsen and Sylvia H. Golsen v. Commissioner of Internal RevenueCourt of Appeals for the Tenth Circuit · 1971
- Burnet v. HarmelSupreme Court of the United States · 1932
- Putnam v. CommissionerSupreme Court of the United States · 1956
- Fin Hay Realty Co. v. United StatesCourt of Appeals for the Third Circuit · 1968
- Estate of Travis Mixon, Jr. v. United StatesCourt of Appeals for the Fifth Circuit · 1972
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