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95 percent ownership interest.1 The issue for consideration is
whether petitioner may increase his Impact stock's basis by the
amount of certain cancellation of indebtedness (COD) income that
Impact realized at a time when it was insolvent.2 We hold that
he may not. Unless otherwise stated, section references are to
the Internal Revenue Code in effect for the years in issue. Rule
references are to the Tax Court Rule of Practice and Procedure.
Amounts are rounded to the nearest dollar.
Background
This case was submitted fully stipulated pursuant to Rule
122. The stipulation of facts and the accompanying exhibits are
incorporated herein and found accordingly.
Petitioners resided in Barrington, Illinois, at the time
they filed their petition. They filed joint Federal income tax
returns for the taxable years 1991 through 1994. At some point,
petitioners filed Form 1045, Application for Tentative Refund.
On Form 1045, they claimed 1991 through 1993 refunds based on a
1994 net operating loss deduction (NOLD) relating to petitioner
husband's 95 percent interest in Impact.
Impact suffered losses for the period 1992 through 1994.
Petitioner's share of the 1992 loss was $120,630 (95 percent of
1 Staci K. Cronin is a petitioner solely by virtue of having
filed a joint returns with her husband. Hereinafter, references
to "petitioner" will be to petitioner husband, Jerome B. Cronin.
2 Discharge of indebtedness income is also referred to as
cancellation of debt income (COD income). For purposes of this
opinion, we refer to the income generated from the discharge of
indebtedness pursuant to sec. 61(a)(12) as COD income.
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