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The S corporation audit and litigation procedures were
enacted by Congress in 1982 in order to provide a method for the
unified treatment of subchapter S items among shareholders.
Subchapter S Revision Act of 1982, Pub. L. 97-354, sec. 4(a), 96
Stat. 1691-1692; see Dial USA, Inc. v. Commissioner, 95 T.C. 1, 3
(1990). A subchapter S item is defined as "any item of an S
corporation to the extent regulations prescribed by the Secretary
provide that, for purposes of * * * [subtitle F of the Code
(Procedure and Administration)], such item is more appropriately
determined at the corporate level than at the shareholder level."
Sec. 6245. Pursuant to section 301.6245-1T(a), Temporary Proced.
& Admin. Regs., 52 Fed. Reg. 3003 (Jan. 30, 1987), subchapter S
items are those "items which are required to be taken into
account for the taxable year of an S corporation under subtitle A
of the Code". See University Heights at Hamilton Corp. v.
Commissioner, 97 T.C. 278, 281 (1991). Section 301.6245-1T(a)(1)
and (b), Temporary Proced. & Admin. Regs., supra, more
specifically defines subchapter S items, in part, as follows:
(1) The S corporation aggregate and each
shareholder's share of, and any factor necessary to
determine, each of the following:
* * * * * * *
(iv) Items of income of the corporation that
are exempt from tax;
* * * * * * *
(b) Factors that affect the determination of
subchapter S items. The term "subchapter S item"
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