Homero F. Meruelo v. Commissioner of Internal Revenue

WILLIAM PRYOR, Circuit Judge:

This appeal from the disallowance of a taxpayer's claimed deduction for his share of losses suffered by an S corporation presents the following issue: whether monetary *940 transfers between various business entities partly owned by the taxpayer and an S corporation that were later reclassified as loans from the taxpayer to the S corporation established a "bona fide indebtedness" that "runs directly" to the taxpayer. Treas. Reg. § 1.1366-2 (a)(2)(i) ; see also 26 U.S.C. § 1366 . Homero Meruelo was a shareholder of Merco of the Palm Beaches, Inc., which suffered a…