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Tax Returns
On RTA’s Federal income tax return for 1991, RTA claimed a
loss of $1,692,000 with respect to its investment in the TTS (the
TTS loss). RTA characterized the TTS loss as resulting from the
disposition of section 1231 property and reported to each
shareholder his or her (her) pro rata share of the TTS loss.
Each shareholder is a calender-year taxpayer. Each reported her
pro rata share of the TTS loss on her 1991 Federal income tax
return. Respondent denied the shareholders’ deductions for the
TTS loss, explaining that there was insufficient evidence of a
loss.
OPINION
I. Introduction
Resources Technology Associates, Inc. (RTA), is an
S corporation within the meaning of section 1361(a). As such, it
is not generally subject to Federal income tax. See sec.
1363(a). Instead, RTA’s items of income, loss, deduction, and
credit are passed through to its shareholders and taxed directly
to them. See sec. 1366. RTA determined that it suffered a loss
in 1991 on its investment in certain technology and reported that
loss to its shareholders (the shareholders), each of whom claimed
his or her (her) pro rata share on her 1991 Federal income tax
return. Respondent does not question RTA’s investment in the
technology; respondent questions only whether RTA sustained any
loss in 1991 because RTA had pending at the end of 1991 a lawsuit
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Last modified: May 25, 2011