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income of an S corporation under section 108(a)--at the corporate
level.
Having construed the literal language of the statute, we
find our construction of the statute confirmed by a proper view
of the statute in the overall statutory scheme. King v. St.
Vincent's Hosp., 502 U.S. 215, 221 (1991); Norfolk S. Corp. v.
Commissioner, 104 T.C. 13, 40, supplemented by 104 T.C. 417
(1995). In that regard, petitioner's argument is undermined by
section 1366(b) which provides that the character of any item
included under section 1366(a)(1)(A) is determined "as if such
item were realized directly from the source from which realized
by the corporation, or incurred in the same manner as incurred by
the corporation." Consequently, we construe section
1366(a)(1)(A) in combination with section 108(d)(7)(A) to
preclude excluded COD income from recognition at the shareholder
level. Thus, since excludable COD income of an insolvent S
corporation does not pass through to the shareholders under
section 1366(a)(1)(A), it, therefore, cannot increase the basis
of their stock under section 1367(a)(1)(A).
Moreover, we note that section 108(d)(6) provides that, in
the case of a partnership, the COD income exclusion will be
applied at the partner level. Stated in a different manner, COD
income realized by the partnership may result in different
outcomes depending upon the financial position of each partner;
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