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Applying the maxim that “superfluity does not vitiate”,1
I therefore concur in more than the “result only” of the majority
opinion, even though I don’t join it because I don’t adopt
everything it says. By a parity of reasoning, I don’t join Judge
Foley’s “concurring in result only” opinion--even though I fully
agree with his text--because of his restrictive description of
what he’s concurring in.
I.
Section 108(a) provides that gross income does not include
COD of an insolvent (or bankrupt) taxpayer. Section 108(d)(7)(A)
provides that, in the case of an S corporation, subsections (a)
and (b) of section 108 “shall be applied at the corporate level.”
Section 108 is properly interpreted in a way that prevents a
basis step-up in the stock of an S corporation on account of COD
excluded from gross income by section 108(a). To interpret
section 108 to the contrary would deprive the S corporation
corporate level attribute reduction scheme of any consequence.
Following the approach to statutory construction that favors
the reading of an ambiguous provision so as to avoid an illogical
result that is inconsistent with the larger statutory scheme of
which the provision is a part, I join the majority and Judge
Foley in reading section 108(d)(7)(A) as an exception to the
normal S corporation passthrough regime. Section 108(d)(7)(A)
1 See, e.g., Cal. Civ. Code, sec. 3537 (West 1997).
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