In this case the petitioner had a basis of $ 5,000 in her stock in the corporation. This was completely exhausted after1972 U.S. Tax Ct. LEXIS 36">*44 the corporation's first year of operation. The corporation lost $ 95,859.86 in that year. On her 1965 Federal income tax return the petitioner reported $ 47,929.93 as a deduction from gross income attributable to such loss. This clearly exceeded her basis in the stock. She is therefore entitled to a deduction only if she has loaned the corporation money and then only to the extent of her adjusted basis in such indebtedness. Cf. Richard Lee Plowden, 48 T.C. 666">48 T.C. 666 (1967), affirmed per curiam sub nom. Roberts v. Commissioner, 398 F.2d 340">398 F.2d 340 (C.A. 4, 1968).

The "benefits" of an electing corporation's net operating loss are strictly limited to the shareholders of the corporation. These benefits are distributed among all persons who owned the stock during the taxable year rather than inuring to the holders of the stock as of the last day of the taxable year. If the shareholders cannot utilize the net operating loss within the prescribed time, the tax benefit is lost forever. Cf. John E. Byrne, 45 T.C. 151">45 T.C. 151 (1965), affd. 361 F.2d 939">361 F.2d 939 (C.A. 7, 1966). The possibility1972 U.S. Tax Ct. LEXIS 36">*45 of such loss has been recognized. The "tax benefits offered by the Code frequently turn out to be unavailable to taxpayers because of rather rigid statutory limitations Congress placed upon the right to receive those benefits." Hauptman v. Director, 309 F.2d 62">309 F.2d 62, 309 F.2d 62">65 (C.A. 2, 1962).

We must view this case not with an eye to what could have been done but rather what was in fact done. Hence the key question is whether or not the debt of the corporation runs "directly to the shareholder." The loan must in fact have been made by the shareholder and not merely guaranteed by him. See William H. Perry, 47 T.C. 159">47 T.C. 159 (1966), affd. 392 F.2d 458">392 F.2d 458 (C.A. 8, 1968); Rev. Rul. 69-125, 1969-1 C.B. 207. This, of course, does not rule out the possibility that a shareholder could borrow the money personally and then loan the money to the corporation. In that event the corporation's debt would run directly to the shareholder. See Seven Sixty Ranch Co. v. Kennedy, ( D. Wyo. 1966, 17 A.F.T.R. (RIA) 587, 66-1U.S.T.C. par. 9293).1972 U.S. Tax Ct. LEXIS 36">*46 Clearly there must be a debt running directly to the shareholder in order to permit the deduction from income of a corporate net operating loss.

It is necessary for us to trace the lineage of the loans in question to determine their tax attributes. We cannot ignore the fact that the Estate of Harry Prashker came into being on his death in December 1961, and for various reasons the estate has continued to maintain its 59 T.C. 172">*177 existence. The petitioner here is the sole beneficiary of the estate and has received distributions from it over the years. All loans were made by checks drawn on the estate's funds. All repayments were made to the estate. It was not until 1968 that Jamy, Inc.'s financial statements indicated a loan from a shareholder. Yet in 1965 the petitioner deducted from other income one-half the net operating loss of the corporation for that year. This was greatly in excess of the basis of her stock in the corporation. The only way available to petitioner to deduct Jamy's losses, absent a further contribution to equity capital, would be to loan money to the corporation.

What is important here is the identity of the lender, for it is the shareholder-lender that 1972 U.S. Tax Ct. LEXIS 36">*47 the statute is concerned with. Petitioner argues that the "clear language of the Code," presumably section 1374, allows the indebtedness to the estate to be added to the shareholder's basis. The statute, however, speaks of "any indebtedness of the corporation to the shareholder" and does not make provision for attribution of an estate's loan to its sole beneficiary. The provisions are plain and unambiguous. The indebtedness must run directly to the shareholder and not circuitously through an estate. We cannot ignore the distinct legal entity of the estate. A decedent and his estate are treated as separate legal entities. See Herbert's Estate v. Commissioner, 139 F.2d 756">139 F.2d 756 (C.A. 3, 1943), certiorari denied 322 U.S. 752">322 U.S. 752 (1944).

Contrary to petitioner's argument, the attribution rules of section 267 are not applicable to this situation. That section applies to losses from sales or exchanges of property directly or indirectly between certain related persons. Such losses are not allowed as deductions. The attribution relationships set forth in section 267 (b) do not purport to attribute ownership of a debt from an estate1972 U.S. Tax Ct. LEXIS 36">*48 to a beneficiary. The attribution arises only when a deduction is sought for losses involving transactions between related persons. The denial of this deduction will not support the inference that the section was meant to attribute a loan made by an estate to a beneficiary of that estate.

Petitioner has treated the estate as an independent entity in the past. The estate purchased at a discount and held an account payable to a factor; the estate has consistently filed fiduciary income tax returns and there have been distributions to petitioner from the estate. Petitioner has secured the benefits accruing to an estate under the Federal tax laws.

The estate, if a shareholder in Jamy, Inc., could have deducted any net operating losses attributable to its shareholdings not in excess of the basis of its stock and indebtedness. Unfortunately, this was not possible here because the estate was only a creditor of Jamy, Inc., and not a shareholder.

59 T.C. 172">*178 Viewing the facts as they are and the law as it is, we are led inexorably to the conclusion that the petitioner is not entitled to treat the money loaned by the estate to Jamy, Inc., as a part of her basis for the purpose of deducting1972 U.S. Tax Ct. LEXIS 36">*49 net operating losses.

Decision will be entered for the respondent.