Patrick E. Catalano - Page 11

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          without published opinion 747 F.2d 1463 (5th Cir. 1984).                    
          Accordingly, “Apart from certain situations permitting the                  
          lifting of the corporate veil, the corporate entity and the legal           
          consequences flowing therefrom are controlling.”  Amorient, Inc.            
          v. Commissioner, 103 T.C. 161, 169 (1994).  In view of these                
          fundamental principles, courts have consistently required                   
          shareholders to treat income received as passthroughs from their            
          S corporations as distinct from income the same shareholders                
          received for providing personal services to their corporations.             
          This requirement applies even though the shareholders, and not              
          their corporations, are liable for their pro rata shares of                 
          corporate income on their individual income tax returns.  See,              
          e.g., Durando v. United States, supra (passthrough income from an           
          S corporation is not net earnings from self-employment for                  
          purpose of computing Keogh plan deductions); Crook v.                       
          Commissioner, supra (passthrough income of S corporation is                 
          dividend income, not wages or salary, to its shareholders for               
          purposes of investment interest deductions); Ding v.                        
          Commissioner, T.C. Memo. 1997-435 (for purposes of self-                    
          employment tax, passthrough losses from an S corporation cannot             
          be used to reduce shareholder's self-employment income paid by              
          the corporation).  As the Court of Appeals for the Ninth Circuit            
          has explained, it is improper                                               
               to treat income earned by a corporation through its                    
               trade or business as though it were earned directly by                 

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