Step-up basis for guaranteed loans

Pete Sleiman was involved in an unpleasane lease agreement together with Blockbuster Video Incorporated that he used to buy a piece of land. After purchasing that land, Peter constructs a movie rental store to lease to Blockbuster Video Inc. In order to smooth this process, Peter creates an S corporation that he reassigns his own rights under the lease of the corporation titled REE, Inc. A bit later REE got into bank loans that equaled to one million dollars and pledged the property purchased for the contract as collateral. Sleiman pledged those bank loans under his corporation. But the banks have never asked Peter for the actual repay of those bank loans.

Issue

The question regarding the above circumstances is whether Sleiman, since he had previously guaranteed for a sum of a million dollars, would be receive a step-up basis for a similar amount he guaranteed for the corporation.

Analysis

Given that peter Sleiman had guaranteed the bank loans, he ought to be entitled to the step-up in basis for the readjustment of the value of the loan which the corporation took. Therefore, the loan taken by REE, despite the fact that Peter Sleiman had guaranteed it, is exclusively a liability to the REE Inc. including all the interest rates it attracts. As long as REE Inc. did not dishonor or fail to pay for the loan, and did not at all seek the amount from Peter Sleiman, there is no point in filing for a step-up in basis readjustment since guaranteeing the cost of loan does not lead any expenditure Peter Sleiman.

Conclusion

In conclusion, Peter Sleiman is not entitled to the one million dollar step-up basis for the guaranteed loans since he is not directly liable for the loans. However, if Sleiman had personally took the loan for his personal use or investment, he would have been liable for the same.