- 7 - or decreased by any adjustment of the item of income in a redetermination of the shareholder's income tax liability. During the 1991 taxable year, there were no regulations addressing the application of either section 1366(a)(1)(A) or section 1367(a)(1)(A). However, the legislative history provides guidance with respect to section 1366: The following examples illustrate the operation of the bill's pass through rules. * * * * * * * d. Tax-exempt interest--Tax-exempt interest will pass through to the shareholders as such and will increase the shareholders' basis in their subchapter S stock. Subsequent distributions by a corporation will not result in taxation of the tax-exempt income. [S. Rept. 97-640, at 15-16 (1982), 1982-2 C.B. 718, 725.] The Subchapter S Revision Act of 1982 (1982 Act), Pub. L. 97-354, 96 Stat. 1669, enacted section 1367(a) and defined "items of income" by reference to section 1366(a)(1)(A), which refers to "items of income (including tax-exempt income) * * * the separate treatment of which could affect the liability for tax of any shareholder". The Senate Finance Committee report accompanying the 1982 Act, S. Rept. 97-640, supra at 18, 1982-2 C.B. at 726, further explains: 3. Basis adjustment (sec. 1367) Under the bill, both taxable and nontaxable income will serve * * * to increase * * * a subchapter S shareholder's basis in the stock of the corporation.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
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