Mel T. Nelson - Page 23

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          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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