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Ordinarily, the current year’s NOL of an S corporation
passes through to its shareholder(s) under section 1366(a)(1)(A).
If such a shareholder should lack sufficient basis in his stock
in and debt from the corporation to use his share of the NOL
currently, it would be disallowed and suspended under section
1366(d)(1). Section 108(d)(7)(B) says that any loss or deduction
of an insolvent S corporation with COD that is so suspended shall
be treated as an NOL of the corporation and reduced at the
corporate level under section 108(b)(2)(A). The foregoing would
explain how petitioner arrived at the upward basis adjustment he
claimed in the amount of $1,375,790, reducing the total COD of
$2,030,568 by the amount of the corporate loss of $654,788, and
thereby accounting for the entire amount of MAI’s COD.5 Although
we have rejected petitioner’s arguments for the upward basis
adjustment he claimed, he and his return preparer deserve credit
for not taking a return position as aggressive as his counsel
argues he was entitled to.
III.
Respondent’s and petitioner's briefs in this case and in
Winn v. Commissioner, T.C. Memo. 1998-71, and the voluminous
literature have devoted inordinate attention to the question of
5 Left unanswered is my question supra note 3, asking how
petitioner could have had a basis of $1,028,206 in his stock of
MAI that respondent did not disallow.
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