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make two arguments relating to shareholder basis. First,
petitioners allege that if the Court should sustain respondent's
section 482 adjustments and conclude that such adjustments result
in constructive corporate distributions and/or shareholder
contributions, then the Court should address the legal question
whether such constructive corporate distributions and/or
shareholder contributions generally will result in adjustments to
the shareholders' bases in their stockholdings. Second,
petitioners allege that if the Court should sustain respondent's
section 482 adjustments and conclude that such adjustments result
in constructive corporate distributions and/or shareholder
contributions, then the resulting constructive shareholder
contributions to Foods would give Foods’ shareholders sufficient
bases in their stock to allow them to recognize their pro rata
shares of Foods' losses, thereby offsetting the taxable gains
associated with the section 482 adjustments to Hatchery's gross
sales.4
In Dial, Inc. v. Commissioner, supra, a proceeding brought
under the unified subchapter S corporation audit and litigation
provisions, the Court, sua sponte, challenged (and ultimately
4 Sec. 1366(d)(1) provides that if an S corporation
sustains a loss, an individual shareholder's deduction of his or
her pro rata share of the loss is limited to the shareholder’s
adjusted basis in the stock and the indebtedness of the
corporation to the shareholder.
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Last modified: May 25, 2011