No Debt Basis With Taxpayer Between Lender, S Corporation, Sixth Circuit Holds

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The U.S. Court of Appeals for the Sixth Circuit held Aug. 6 that a taxpayer had no debt basis in several S corporations related to a cellular telephone network, because he inserted himself into already-completed transactions between the entity that originally borrowed the funds and the entities that ultimately received the funds (Broz v. Commissioner, 6th Cir., No. 12-01403, 8/23/13).
The court upheld a 2011 U.S. Tax Court decision affirming the Internal Revenue Service's finding of an $18 million deficiency in Robert Broz's tax filings for 1996, 1998, 1999, 2000, and 2001 (171 DTR K-2, 9/2/11).
The IRS disallowed losses Broz claimed resulting from amortization and business expense deductions taken by the S corporations after the IRS determined Broz did not have sufficient debt basis.
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