An S corporation shareholder can deduct losses passed through to him/her only to the extent of the shareholder’s basis in stock and by the shareholder to the corporation. An appellate court barred a shareholder from treating loans she made to another entity that she wholly owned as part of her basis for deducting losses that were passed through to her. The court rejected her ”substance over form” argument that the loan to the other entity was in substance a loan to her S corporation; it wasn’t.
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