- 11 - As a result of these adjustments, respondent determined that the Salems had taxable income of $74,153 for 1990. As a result of the adjustments to the Salems' income for 1990, respondent determined that the net operating loss carryback to 1987 was zero and increased the Salems' 1987 income by $127,465. In a statutory notice of deficiency dated March 7, 1995, issued to the Saxons, respondent determined that the loss from SS&N was deductible to the extent of Mrs. Saxon's basis in her interest in SS&N. Respondent further determined that her basis as of January 1, 1990, was $29, and that the Saxons' taxable income, therefore, was increased by $24,542. OPINION 1. Claimed Net Operating Loss Deduction Section 1366(d)(1) permits an S corporation shareholder to deduct a proportionate share of the corporation's net operating loss to the extent that the loss does not exceed the sum of the adjusted basis of the shareholder's stock in the corporation and any indebtedness of the S corporation to the shareholder. Petitioners argue that the bank looked primarily to Mr. Salem and Mrs. Saxon for repayment of the loans at issue. Petitioners contend that the bank in substance made the loans to Mr. Salem and Mrs. Saxon, and they in turn made loans to SS&N. Petitioners conclude, therefore, that the loans constituted indebtedness of the S corporation to its shareholders.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
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