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At the time that Parker realized the discharge of indebtedness
income, PDW&A was insolvent to the extent of $2,181,748.
Winn increased his basis in his PDW&A stock by the amount of
his pro rata share ($1,010,648) of the discharge of indebtedness
income. Winn did not claim a loss on the Winns' 1991 Federal
income tax return because Winn believed that the passive activity
loss limitations prevented him from doing so. On the Winns' 1992
Federal income tax return, Winn claimed losses from PDW&A that
were carried over from 1991 totaling $1,010,648.
Gitlitz increased his basis in his PDW&A stock by the amount
of his pro rata share ($1,010,648) of the discharge of
indebtedness income. Gitlitz claimed losses from PDW&A totaling
$1,010,648 on the Gitlitzes' 1991 Federal income tax return.
Absent the basis increase, the deductibility of these losses
would have been suspended under section 1366(d).
Respondent disallowed the losses claimed by Winn and Gitlitz
on the premise Winn and Gitlitz lacked sufficient basis in their
PDW&A stock.
Discussion
Under Rule 121, a summary adjudication may be made "if the
pleadings, answers to interrogatories, depositions, admissions,
and any other acceptable materials, together with the affidavits,
if any, show that there is no genuine issue as to any material
fact and that a decision may be rendered as a matter of law."
Rule 121(b). The parties agree that whether discharge of
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