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of section 108(b)(4)(A), Petitioner should have calculated his
tax liability without reducing the COD income by his share of
MAI’s loss. * * * [This is because] � 108(b)(4)(A) states that
attribute reduction occurs only after the liability for the
taxable year of the discharge has been determined.” Thus, taking
petitioner’s argument to its next step, petitioner would have
sufficient basis in his S corporation stock at the end of 1991 to
allow a passthrough of the $654,778 loss and to start 1992 with a
net increase of that basis of $1,375,790.
That such is the result that seems to follow from
petitioner’s argument about the application of the ordering rules
of section 108(b)(4), reinforces the correctness of the Court’s
conclusion about section 108(d)(7), which specifically applies to
S corporations and their shareholders. Section 108(d)(7) trumps
section 108(b)(4), which is a provision of more general
applicability to insolvent taxable entities, such as C
corporations and individuals, who experience COD.
Nevertheless, the question remains: How would section
108(d)(7)(B) operate if MAI did actually suffer a 1991 NOL in the
amount of $654,778? Section 108(d)(7)(B), as in effect for the
year in issue, provides:
(B) Reduction in carryover of disallowed losses
and deductions.--In the case of an S corporation, for
purposes of subparagraph (A) of subsection (b)(2), any
loss or deduction which is disallowed for the taxable
year of the discharge under section 1366(d)(1) shall be
treated as a net operating loss for such taxable year.
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