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indebtedness income increases a taxpayer's basis in his
S corporation stock may be decided as a matter of law.
Section 1367(a)(1) provides:
(1) Increases in basis.--The basis of each
shareholder’s stock in an S corporation shall be
increased for any period by the sum of the
following items determined with respect to that
shareholder for such period:
(A) the items of income described in
subparagraph (A) of section 1366(a)(l),
(B) any nonseparately computed income
determined under subparagraph (B) of section
1366(a)(1), and
(C) the excess of the deductions for
depletion over the basis of the property
subject to depletion.
Section 1366(a)(1) provides:
(1) In general.--In determining the tax under
this chapter of a shareholder for the
shareholder’s taxable year in which the taxable
year of the S corporation ends (or for the final
taxable year of a shareholder who dies before the
end of the corporation’s taxable year), there
shall be taken into account the shareholder’s pro
rata share of the corporation’s--
(A) items of income (including tax-exempt
income), loss, deduction, or credit the
separate treatment of which could affect the
liability for tax of any shareholder, and
(B) nonseparately computed income or
loss.
For purposes of the preceding sentence, the items
referred to in subparagraph (A) shall include
amounts described in paragraph (4) or (6) of
section 702(a).
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Last modified: May 25, 2011