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income are included in gross income. Sec. 61(a). Sections 101
through 135 exclude specific items of income from gross income.
Discharge of indebtedness income to the extent of insolvency is
one of the items of income so excluded. Sec. 108(a)(1)(A), (3).
Based on the foregoing, we hold that discharge of
indebtedness is an "item of income" for purposes of determining a
shareholder's basis in S corporation stock by its inclusion in
the definition of gross income under section 61(a)(12).
On the basis of the record, respondent’s motions for summary
judgment will be denied, and petitioners’ cross-motions for
partial summary judgment will be granted.
To reflect the foregoing,
Appropriate orders
will be issued.
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Last modified: May 25, 2011