- 5 -
transferred). As of December 31, 1992, the partners of the
Partnership had not dissolved the Partnership.
For 1990 and 1991, the Corporation realized operating losses
of $1,190,460 and $482,481, respectively.
On their joint Federal income tax returns for 1987 through
1992, prepared by petitioners' accountant, petitioners deducted
(through net operating loss carrybacks and carryovers) their
entire respective shares of the previously mentioned losses of
the Corporation for 1990 and 1991.
On audit, respondent determined that petitioners lacked
sufficient tax bases in their investments in the Corporation to
be entitled to any of the above-claimed loss deductions.
OPINION
Under section 1366, shareholders in an S corporation may
deduct their pro rata shares of the corporation's losses to the
extent the losses are supported by the shareholders' adjusted
bases in the stock and in any indebtedness of the S corporation
to the shareholders.
Unless the shareholders of the S corporation incur an
economic outlay with respect to indebtedness that the corporation
owes to third parties, the shareholders are not entitled to
increase their bases in their stock by the amount of the
indebtedness. See, e.g., Bergman v. United States, 174 F.3d 928,
932-934 (8th Cir. 1999); Estate of Leavitt v. Commissioner, 875
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 Next
Last modified: May 25, 2011