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separate treatment of which could affect the liability for tax of
any shareholder". Sec. 1366(a)(1)(A).4 Moreover, the subchapter
S regime incorporates all "nonseparately computed income or
losses". Sec. 1366(a)(1)(B). Under section 1367(a)(1)(A),
income that is enumerated in section 1366(a)(1)(A) increases a
shareholder's basis in a subchapter S corporation's stock.
Section 1366(f), however, specifies exceptions to the overall
statutory scheme, none of which is implicated here.
The parties' dispute herein centers on the language in
section 108(d)(7)(A). Specifically, the parties differ on the
precise meaning of the phrase, "In the case of an S corporation,
* * * [section 108] shall be applied at the corporate level."
Sec. 108(d)(7)(A). Respondent argues that section 108(d)(7)(A)
represents an adjustment and/or exception to the principles
underlying the subchapter S provisions that items of income
realized or recognized at the corporate level are passed through
to the shareholders. On the other hand, petitioner contends that
section 108(d)(7)(A) stands for the proposition that prior to the
determination of an individual shareholder's income tax
liability, the S corporation must be ascertained to be insolvent.
4This Court addressed facts similar to those found in the
instant case when we ruled on cross-motions for summary judgment
in Winn v. Commissioner, T.C. Memo. 1997-286. The Winn case has
been withdrawn in accordance with T.C. Memo. 1998-71 released
this date.
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