110 T.C. No. 6
UNITED STATES TAX COURT
ST. CHARLES INVESTMENT CO., BURTON C. BOOTHBY,
TAX MATTERS PERSON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5793-96. Filed February 5, 1998.
Prior to Jan. 1, 1991, X was a closely held C
corporation, which incurred passive activity losses
(PAL's) giving rise to suspended PAL's pursuant to sec.
469, I.R.C. A portion of the suspended PAL's was
attributable to depreciation. X reduced the bases of
the properties used in the passive activities by the
amounts of such depreciation. X elected S corporation
status as of Jan. 1, 1991. During 1991, it disposed of
several of the passive activities and calculated the
gain (loss) from those dispositions using the bases of
the properties involved as reduced by the depreciation.
X used suspended PAL's allocable to the sold activities
which had arisen prior to 1991, in calculating its
taxable income for 1991. Held, sec. 1371(b)(1),
I.R.C., precludes X from using its suspended PAL's in
1991, an S corporation year. Held, further, X may not
recompute the bases of the sold properties to include
amounts representing the portions of the suspended
PAL's attributable to depreciation.
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