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stock to petitioner upon its receipt in 1992, WIS recognized this
built-in gain in full. Sec. 311(b). Since the character of the
gain is ordinary, it is taken into account in determining WIS’s
nonseparately computed loss for 1992. Secs. 1221(4), 1366(a).
The amount of WIS’s nonseparately computed loss for 1991
greatly exceeded petitioner’s basis in WIS stock. As a result,
on the distribution of the SPS stock to him at the beginning of
1992, petitioner had no remaining basis in WIS stock and
recognized capital gain to the full extent of the amount of the
distribution. Secs. 1367(a)(2), 1368(b)(2). The amount of the
distribution, and the gain recognized to petitioner, was the fair
market value of the SPS stock distributed, viz, $30,647. Secs.
301(b)(1), 1371(a)(1). This income fully offsets the pass-
through losses from SPS to which petitioner is entitled for 1992
by reason of the investment made in SPS pursuant to the business
reincorporation transaction.
Based on the foregoing analysis, we redetermine the
adjustments to petitioners’ income attributable to WIS and SPS as
follows:
Taxable Year 1990
Adjustments Attributable to WIS
Total of bases in WIS stock and debt
(investment basis) $98,015
WIS loss per return 65,169
Pass-through loss allowed per notice of
deficiency 65,169
Investment basis after pass-through adjustment 32,846
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