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however, limits the aggregate amount of losses and deductions
taken into account under section 1366(a) to the sum of (1) the
shareholder's adjusted basis in the stock of the corporation, and
(2) the shareholder's adjusted basis in any indebtedness owed by
the corporation to the shareholder.22 It is the second
limitation, relating to corporate indebtedness to the
shareholders, that is in issue in the instant case.
Neither the Code nor the regulations define the phrase
"adjusted basis in any indebtedness owed by the corporation to
the shareholder". Legislative history, however, indicates that
The amount of net operating loss apportioned to
any shareholder * * * is limited under section
1374(c)(2) * * * [predecessor of section
1366(d)(1)(B)23] to the adjusted basis of the
shareholder's investment in the corporation; that is,
to the adjusted basis of the stock in the corporation
owned by the shareholder and the adjusted basis of any
indebtedness of the corporation to the shareholder.
22 Sec. 1366(d) provides as follows:
(d) Special Rules for Losses and Deductions.--
(1) Cannot exceed shareholder's basis in
stock and debt.--The aggregate amount of
losses and deductions taken into account by a
shareholder under subsection (a) for any
taxable year shall not exceed the sum of--
(A) the adjusted basis of the shareholder's stock
in the S corporation * * *, and
(B) the shareholder's adjusted
basis of any indebtedness of the S
corporation to the shareholder * *
*.
23 Sec. 1374 was superseded upon the addition of sec. 1366 to
the Code. Subchapter S Revision Act of 1982, Pub. L. 97-354,
sec. 2, 96 Stat. 1669, 1677.
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