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After such determination, the "suspended losses" are carried to
the corporate level pursuant to section 108(d)(7)(A), and
converted to net operating losses pursuant to section
108(d)(7)(B). Thus, the remaining "suspended losses" under
section 1366(d) are deemed to be a tax attribute subject to
reduction pursuant to section 108(b). Sec. 108(b)(2)(A). In
short, the fact that the "suspended losses" are determined on the
shareholder level pursuant to section 1366(d), without more,
simply does not denote that the conversion and subsequent
reduction are performed on the same level.
Consequently, we do not interpret section 108(d)(7)(B) as an
explicit recognition by the Congress that excluded COD income is
included in the computation of a shareholder's income tax
liability and the subsequent calculation of the "suspended
losses" of section 1366(d)(1), nor that section 108(d)(7)(A),
through a parallel mechanism, requires that COD income derived by
an insolvent S corporation pass through to its shareholders.
In our view, petitioner has focused his analysis too
narrowly in construing the subchapter S provisions in the context
of the COD income exclusion. In particular, petitioner asserts
that COD income is "tax-exempt" income within the meaning of
sections 1366(a)(1)(A) and 1367(a)(1)(A). Consequently,
petitioner contends that he is required to take account of the
excluded COD income at the shareholder level. In that vein,
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