Mel T. Nelson - Page 15

                                       - 15 -                                         

          excluded COD income at the shareholder level, it would have                 
          provided for statutory language reaching that result.                       
               Furthermore, the ordering rules provide that the income tax            
          liability for the taxable year of the COD income is determined              
          prior to the reduction in tax attributes.  Sec. 108(b)(4)(A).               
          The parties have not cited, and we do not find, authority                   
          addressing the mechanism of section 108(b)(4)(A).  Petitioner               
          asserts that the reductions in tax attributes in section                    
          108(b)(2) are made after the determination of the tax imposed for           
          the taxable year of the discharge.  In other words, the income              
          tax liability of an S corporation and its shareholders must be              
          determined first, and only after such liability is determined can           
          the attributes (including losses suspended under section 1366(d))           
          be reduced.  On the other hand, respondent evidently contends               
          that the "suspended losses" of section 1366(d)(1) should be                 
          reduced at the S corporation level before the income tax                    
          liability of the shareholder is determined.  Thus, respondent               
          argues that the losses of the S corporation must be eliminated              
          under section 108(b)(2).                                                    
               We are not persuaded by petitioner's argument in this                  
          regard.  Here, there is nothing in the statutory language which             
          compels excluded COD income to be included in the calculations              
          for an S corporation shareholder's income tax liability.  Also,             
          section 108(b)(4)(A) states that the reduction of the tax                   





Page:  Previous  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  Next

Last modified: May 25, 2011