- 10 - holding here that adjustments to the AAA for losses are made prior to adjustments for any distributions made during the year. In particular, the legislative history states: Under the bill, both taxable and nontaxable income and deductible and nondeductible expenses will serve, respectively, to increase and decrease a subchapter S shareholder's basis in the stock of the corporation. These rules generally will be analogous to those provided for partnerships under section 705. Under these rules, income and loss for any corporate taxable year will apply to adjust basis before the distribution rules apply for that year. * * * [Emphasis added.] H. Rept. 97-826, at 17 (1982); 1982-2 C.B. 730, 738; S. Rept. 97- 640, at 18 (1982); 1982-2 C.B. 718, 726. Petitioners contend that the section 1367 legislative history does not provide clear guidance on the order of adjustments to the AAA. Petitioners rely on the statement in the legislative history that basis adjustments to S corporation stock should be analogous to the basis adjustments to partnership interests. Under section 705 of the partnership rules, a distribution to a partner decreases the partner's basis in his partnership interest before the partner's basis is reduced for partnership losses. See Rev. Rul. 66-94, 1966-1 C.B. 166. Under the partnership rules, the relevant basis is the partner's basis in the partnership interest when the distribution occurs. However, petitioners' argument would require us to ignore the explicit statement in the legislative history that adjustments for losses of an S corporation are made before adjustments for shareholder distributions. The legislative history states that subchapter S is meant only to be generally analogous to subchapter K, and directly conflicts withPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
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