- 23 -
Sav. Bank, 499 U.S. at 582-583. Accordingly, section 108 was
enacted to reduce the possibility of permanent deferral by
requiring the excluded income to be applied against the basis of
depreciable assets, net operating losses, capital loss
carryovers, and tax credits.
In light of the relatively sparse legislative history that
bears on the issue before us, we must construe what we can to
form a proper perspective and provide a definitive answer to this
anomalous situation. Here, petitioner has not borne an economic
cost. On the contrary, it would appear that the economic cost
was to others, the creditors of the corporation. Nor has
petitioner made an economic outlay. Section 108 allows an
insolvent S corporation to receive COD income sheltered from
immediate taxation to its shareholders. To permit petitioner to
increase basis in the stock of the corporation on account of such
tax-deferred income would produce a windfall to him.
The legislative history further illustrates that once a
taxpayer reduces its tax attributes pursuant to section
108(b)(2), "Any further remaining debt discharge * * * does not
result in income or have other tax consequences." S. Rept. 96-
1035, supra at 2, 1980-2 C.B. at 620-621. We conclude from the
foregoing language that Congress did not intend for the taxpayer
to have any further tax consequences, either favorable or
unfavorable, from the COD income subsequent to the reduction in
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