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income operates, for purposes of subchapter S, at the
corporate level.
1. Held: In deciding whether petitioner may
increase his basis in the corporate stock, sec.
108(d)(7)(A), I.R.C., applies.
2. Held, further, sec. 108(d)(7)(A), I.R.C.,
precludes the application of the conduit rules of
subchapter S.
3. Held, further, petitioner may not increase his
basis in M stock to reflect discharge of indebtedness
income realized by M.
Neil M. Goff, for petitioner.
Virginia L. Hamilton, for respondent.
HAMBLEN, Judge: Respondent determined a deficiency of
$69,381 in petitioner's 1991 Federal income tax. After
concessions, the principal issue for decision is whether
discharge of indebtedness income realized and excluded from gross
income under section 108(a)1 passes through to shareholders of a
subchapter S corporation as an item of income in accordance with
section 1366(a)(1)(A) and, in turn, increases the basis of the
corporate stock under section 1367.2
1All 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.
2Petitioner conceded (1) respondent's reduction of a long-
term capital loss from a Metro Auto-Pico transaction by $10,000,
and (2) respondent's reduction of allowable passive losses from
Western United Service Corp., and Arapahoe Service Corp., by
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