Robert H. and Mildred M. Bettisworth - Page 2




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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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