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indebtedness income excluded from an S corporation’s gross income
under section 108(a) passes through to the S corporation’s
shareholders and, if it does, increases the basis of the
shareholder’s stock under section 1367. We addressed this issue in
Nelson v. Commissioner, 110 T.C. 114 (1998), affd. 182 F.3d 1152
(10th Cir. 1999), wherein we held that cancellation of debt (COD)
income excluded by section 108(a) does not pass through to a
shareholder of an S corporation as an item of income under section
1366(a)(1)(A) so as to allow a corresponding increase in the basis
of the shareholder’s stock under section 1367(a)(1).1 Petitioners
do not agree with our holding in Nelson and request us to “review
and revise” that holding.
All section references are to the Internal Revenue Code as in
effect for the year in issue. All Rule references are to the Tax
Court Rules of Practice and Procedure.
This case was submitted fully stipulated under Rule 122. The
stipulation of facts and the exhibits submitted therewith are
incorporated herein by this reference.
1 Nelson v. Commissioner, 110 T.C. 114 (1998), affd. 182
F.3d 1152 (10th Cir. 1999), was affirmed for the reasons
explained by the U.S. Court of Appeals for the Tenth Circuit in
Gitlitz v. Commissioner, 182 F.3d 1143 (10th Cir. 1999), affg.
Winn v. Commissioner, T.C. Memo. 1998-71, which was decided on
the same day as Nelson.
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