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attributes occurs after the determination of the tax imposed for
"the taxable year of the discharge." Because section 108(b)
applies at the corporate level, we believe that the phrase
"taxable year of the discharge" refers to the taxable year of the
S corporation. Consequently, the S corporation reduces its tax
attributes by the amount excluded from gross income pursuant to
section 108(a) at the end of the corporation's taxable year.
Petitioner suggests that section 108(d)(7)(B) indirectly
applies the reduction in tax attributes delineated in section
108(b)(2) at the shareholder level. Thus, petitioner argues that
section 108(d)(7)(A) similarly permits the passthrough of the
excluded COD income. We do not agree. The language denominated
in section 108(d)(7)(B) is fairly explicit. It provides, in
pertinent part, that the "suspended losses" of section 1366(d)
are deemed to be net operating losses.
As noted, we construe section 108 as mandating the
determination of an S corporation shareholder's income tax
liability for the taxable year without reference to the excluded
COD income. In the process, the shareholder must ascertain the
amount and extent of any "suspended losses".6 Sec. 1366(d)(1).
6The losses incurred by an S corp. are passed through to the
shareholders pursuant to sec. 1366(a)(1) and may be claimed by
the shareholders to the extent of their adjusted bases in the
corporate stock. In the event these losses exceed a
shareholder's adjusted basis, the losses are "suspended" and may
be carried over indefinitely pursuant to sec. 1366(d).
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