Robert W. Eberle and Deborah M. Eberle - Page 2




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          Mr. Eberle's stock in the S corporation.  All section references            
          are to the Internal Revenue Code in effect for the years in                 
          issue, and all Rule references are to the Tax Court Rules of                
          Practice and Procedure.                                                     
               The parties submitted this case fully stipulated pursuant to           
          Rule 122.  At the time the petition was filed, Robert and Deborah           
          Eberle resided in Laguna Beach, California.  During the years in            
          issue, Mr. Eberle was a shareholder in J.A.K.E. Management                  
          Services, Inc. (J.A.K.E.), an S corporation.  In 1995, J.A.K.E.             
          realized, but excluded pursuant to section 108(a), $5,254,480 of            
          discharge of indebtedness income.                                           
               In 1995, Mr. Eberle had suspended (i.e., unused) losses                
          relating to J.A.K.E. because he did not have sufficient stock               
          basis to deduct such losses in prior years.  On their 1995 tax              
          return, petitioners increased Mr. Eberle's stock basis by the               
          amount of his pro rata share of J.A.K.E.'s discharge of                     
          indebtedness income, and, as a result, petitioners deducted a               
          portion of the suspended losses.                                            
               Respondent contends that, pursuant to Nelson v.                        
          Commissioner, 110 T.C. 114 (1998), affd. ___ F.3d ___ (10th Cir.,           
          July 6, 1999), Mr. Eberle's stock basis is not increased.  In               
          Nelson, we held that an S corporation's shareholder may not                 
          increase his basis to reflect the S corporation's excluded                  
          discharge of indebtedness income.  See id.  Petitioners do not              





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