Robert H. and Mildred M. Bettisworth - Page 5




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            Nelson.  Rather, they contend that in Nelson we failed adequately                          
            to address the following legal issues:  (1) Whether COD income is                          
            an item of income that increases basis; (2) whether COD income                             
            constitutes tax-exempt income which passes through to shareholders;                        
            (3) whether section 108(d)(7)(A) operates as an exception to the                           
            general pass-through scheme of sections 1366 and 1367; and (4)                             
            whether Nelson is inconsistent with our holding in CSI Hydrostatic                         
            Testers, Inc. v. Commissioner, 103 T.C. 398 (1994), affd. per                              
            curiam 62 F.3d 136 (5th Cir. 1995).  We disagree with petitioners.                         
            Nelson addressed all of these issues. See Nelson v. Commissioner,                          
            supra at 121-129.  Our opinion in Nelson controls the situation                            
            involved herein; consequently, we sustain respondent’s disallowance                        
            of the claimed NOL carryover.5                                                             
                  To reflect the foregoing,                                                            


                                                            Decision will be entered                   
                                                      for respondent.                                  






                  5     We are mindful that the U.S. District Court for the                            
            District of Oregon recently held that COD income excluded from                             
            gross income under sec. 108(a) passes through to the shareholders                          
            of an S corporation, allowing them to increase the basis of their                          
            stock under sec. 1367.  See Hogue v. United States, ___ F. Supp.                           
            2d ___ (D. Or. Jan. 3, 2000).  We believe this decision to be                              
            erroneous.                                                                                 





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