The Tax Court found that shareholders in two related S corporations may receive a distribution of intangible assets from one of their S corporations and contribute those assets into another one of their S corporations in order to increase their basis in the latter entity and realize the losses generated by that entity.
The court followed its opinions in Ruckriegel v. Commissioner, T.C. Memo. 2006-78; Yates v.
Commissioner, T.C. Memo. 2001-280; and Culnen v. Commissioner, T.C. Memo. 2000-139, rev’d and remanded on another issue, 28 Fed. Appx. 116 (3d Cir. 2002) noting that “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.”
The Court noted that “so long as the underlying distributions and contributions actually occurred” it was of no consequence that the petitioner’s actions may have been motivated by tax considerations.
Read the opinion here:
Maguire v. Commissioner, TC Memo 2012-160