- 31 -
Petitioner’s reply brief makes the point in footnote 2, but
doesn’t return to it in the text, that, under petitioner’s theory
of the case, petitioner in the first instance was entitled to
increase the basis of his MAI stock by the full amount of MAI’s
COD, $2,030,568, unreduced by its $654,778 of losses.4
Petitioner’s argument on the point runs as follows: “Section
108(b)(4)(A) states clearly that the `reductions described in
paragraph (2) [the attribute reductions] shall be made after the
determination of the tax imposed by this chapter for the taxable
year of the discharge’. * * * However, under the timing rules
4 No net operating loss as such in the amount of $654,788
appears on the MAI Form 1120S. The capital loss claimed by
petitioner on his return on the disposition of MAI stock (for no
consideration) was $2,403,996, apparently not reduced on
petitioner’s return by any losses shown by MAI. The stipulated
record does not disclose the source of the basis of $1,028,206 of
petitioner’s stock of MAI that respondent allowed as a long-term
capital loss. One would have thought that, if MAI did have
losses of $654,788, and that petitioner did have $1,028,206 of
basis in his stock, then under the general ordering rule of sec.
108(b)(2)(A) and (D), such losses would have thus been applied to
reduce the basis. MAI’s Form 1120S shows on its face that MAI
had ordinary income of $522,091 (gross income less deductions)
which petitioner reported on his return and a section 1231 loss
of $651,626 and net loss from rental real estate of $3,152, which
add up to the losses of $654,788. Nevertheless, the sum of the
ordinary income shown above and the losses plus other items on
Schedule K of the Form 1120S show an overall loss of $155,287.
It also appears that petitioner, in addition to showing a basis
increase for his MAI stock, also reported positive income of
$2,630,730, which may be attributable in part to the COD of MAI.
The manner in which the MAI stock petitioner disposed of is
not described in the stipulated record. I would assume that the
stock was regarded as worthless. The MAI Schedule L for the 1991
Form 1120S provides an opening balance sheet but no closing
balance sheet.
Page: Previous 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 NextLast modified: May 25, 2011