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Deborah Rosenthal's 1989 and 1990 Federal income tax in the
amounts of $617,446, and $811,723, respectively.1 The issues for
consideration are: (1) Whether petitioners' S corporation
realized discharge of indebtedness income pursuant to section
108(a)2 in the 1992 taxable year, and (2) whether petitioners may
increase the basis in their S corporation stock by the amount of
any discharge of indebtedness income realized by the
corporation.3
FINDINGS OF FACT
This case was submitted fully stipulated pursuant to Rule
122. The stipulation of facts and the exhibits are incorporated
herein and found accordingly.
Petitioners Michael and Madeline Friedman resided in Pepper
Pike, Ohio, at the time the notice of deficiency was issued to
them. The Friedmans filed joint Federal income tax returns for
the taxable years 1989, 1990, and 1992. On October 15, 1993, the
Friedmans filed a claim for refund based on net operating loss
1These cases were consolidated for purposes of briefing and
opinion.
2All section references are to the Internal Revenue Code in
effect for the years at issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure, unless otherwise
indicated.
3Madeline Friedman and Deborah Rosenthal are petitioners
solely by virtue of having filed joint returns with their
husbands. Hereafter, references to "Rosenthal," "Friedman,"
"petitioner-husband," and "petitioners" will be to petitioner-
husbands.
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