Wayne M. and Janet L. Johnson - Page 9

                                        - 9 -                                         

          share of any partnership income, credits, loss, or deductions, he           
          is not entitled to deduct a loss, as provided by sections 702(a)            
          and 704(d), nor is he entitled to any loss for the alleged                  
          worthlessness of his partnership interests.  We hold petitioners            
          are not entitled to a partnership loss carryover in the amount of           
          $2,590,001 for 1994.                                                        
                    B.  Subchapter C Corporation Losses                               
               The remainder of petitioners' claimed loss, $723,240,                  
          originated from petitioner's interests in two subchapter C                  
          corporations.  As stated previously, petitioner has not                     
          established a loss was incurred by the entities in question.                
          Even if he had, petitioner is not entitled to deduct a loss                 
          sustained by the corporation as a subchapter C corporation is not           
          a pass-through entity, such as a partnership.                               
               As to the deductibility of the worthlessness of a taxpayer's           
          stock in a subchapter C corporation, section 165(g) provides for            
          a constructive sale or exchange for worthless stock, which                  
          results in the loss’ being treated as a capital loss.  No such              
          constructive sale or exchange is provided for a partnership                 
          interest.  See La Rue v. Commissioner, 90 T.C. 465, 484 n.22                
          (1988).  The deductibility of the loss is limited by the                    
          provisions of section 1211(b).  However, petitioner has not                 
          established his basis in the stock.  See sec. 6001; Rule 142(a).            
          Therefore, respondent is sustained on this issue.                           

Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  Next

Last modified: May 25, 2011