2d Cir.: Capital Contribution Does Not Increase Shareholder's Basis in Loan to S Corp

The Second Circuit yesterday affirmed a Tax Court ruling (131 T.C. 262 (2008))that capital contributions made to two S corporations in which the taxpayers owned stock could not be treated as “tax-exempt income” to the corporations for the purpose of increasing their basis in loans they made to the corporations under § 1367(b)(2)(B). Nathel v. Commissioner, No. 09-1955 (2d Cir. June 2, 2010)