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tax attributes. In particular, to the extent that COD income
exceeds the tax attributes that are reduced, or if there are no
attributes to reduce, such "excess" income does not go through
the corporate form to the subchapter S shareholders, pursuant to
section 1366(a)(1)(A). In this instance, we believe that the
relevant legislative history precludes an increase (or decrease)
in basis since this represents, in effect, a tax consequence. S.
Rept. 96-1035, supra at 2, 1980-2 C.B. 620-621.
Furthermore, we reject petitioner's contention that the
exclusion for income from the discharge of qualified real
property business indebtedness in section 108(a)(1)(D) is, in
effect, an ex post facto exception to the general design of
section 108 in which COD income with respect to an insolvent S
corporation passes through to the individual shareholders. The
legislative history with respect to section 108(a)(1)(D)
clarifies that the exclusion and basis reduction are both made at
the S corporation level. H. Rept. 103-111, at 624-625 (1993),
1993-3 C.B. 167, 200-201. Moreover, the committee report states
that "the provision simply defers income to the shareholders."
Id. at 625, 1933-3 C.B. at 201. We believe that the committee
report does not indicate a congressional understanding that
section 108 generally provides that the S corporation
shareholders' bases in their stock are adjusted by the otherwise
excluded COD income.
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