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take into account in determining their taxable income for such
years Mrs. Spencer's pro rata share of ordinary loss from SPC-FL,
except to the extent of $5,000 for taxable year 1990, because the
claimed losses exceeded her basis in her stock in SPC-FL and
indebtedness owed to her by SPC-FL. In the Schroeders' notice of
deficiency, respondent determined that they were not entitled to
take into account in determining their taxable income for taxable
years 1991 and 1992 their pro rata share of ordinary loss from
SPC-FL for such years because their claimed losses exceeded their
bases in their stock in SPC-FL and indebtedness owed to them by
SPC-FL. Section 1366(a) generally allows shareholders of S
corporations to take into account their pro rata share of the
corporation's income, losses, and deductions.21 Section 1366(d),
21 Sec. 1366(a) provides, in relevant part, as follows:
(a) Determination of Shareholder's Tax Liability.--
(1) In general.--In determining the tax
under this chapter of a shareholder for the
shareholder's taxable year in which the
taxable year of the S corporation ends * * *,
there shall be taken into account the
shareholder's pro rata share of the
corporation's--
(A) items of income (including
tax-exempt income), loss,
deduction, or credit the separate
treatment of which could affect the
liability for tax of any
shareholder, and
(B) nonseparately computed income
or loss.
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