6 is precluded from taking the ABDC net operating loss in 1987 because his basis in ABDC was zero. In Underwood v. Commissioner, supra, the taxpayers were the sole shareholders of two corporations engaged in the retail barbecue business. One of the corporations, an S corporation, was consistently unprofitable. The other corporation, a C corporation, was consistently profitable. Over the course of approximately 22 months, the C corporation had made loans totaling $110,000 to the S corporation, which were evidenced by a series of promissory notes. The taxpayers' accountant informed the taxpayers that their losses from the S corporation would exceed their adjusted basis in the S corporation and advised them to increase their basis in the S corporation so they could utilize the losses. In an arrangement, not unlike the one herein, the C corporation surrendered the notes of the S corporation to the S corporation, the taxpayers substituted their personal note to the C corporation, and the S corporation gave its demand note to the taxpayers. The Court of Appeals for the Fifth Circuit, affirming the decision of this Court, determined that the taxpayers were not entitled to increase their basis in the S corporation as a result of the arrangement. In reaching its decision, the Court of Appeals for the Fifth Circuit discussed the focus of Congress at the time section 1374(c)(2)(B), the predecessor to section 1366(d)(1), see supraPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011