- 10 -
In essence, petitioners request that we ignore the existence
of the S corporations, which we are unwilling to do. The
principles of Moline Properties, Inc. v. Commissioner, supra,
Deputy v. du Pont, supra, and Crook v. Commissioner, supra, are
not limited to passive shareholder investors. In order to limit
their liability, petitioners chose the corporate form through
which the restaurant and motel businesses of the S corporations
were conducted, and they are bound by the Federal income tax
consequences of their choice. Moline Properties, Inc. v.
Commissioner, supra.
Respondent's position is further supported, and petitioners'
position severely undermined, by the literal language of section
1366, which provides that a shareholder's pro rata share of an S
corporation's pass-through items are only taken into account in
determining the tax imposed under chapter 1 of the Internal
Revenue Code. The section 1401 self-employment tax is not a tax
under chapter 1, but rather chapter 2.
Lastly, we note that on the rare occasions that courts have
directly or indirectly focused upon issues similar to the one
here under consideration, the Commissioner's position, as
reflected in the Rev. Rul. 59-221, 1959-1 C.B. 225, has been
upheld. See Durando v. United States, 70 F.3d 548 (9th Cir.
1995); Hansen v. Commissioner, T.C. Memo. 1994-388.
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