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is increased for his or her share of the pass-through amounts.
See sec. 1367(a)(1).10 Consequently, we assume that Briggs’ and
Mrs. Morris’ adjusted bases in their stock included their pro
rata shares of Towers Construction’s gas rebate earnings. To
that extent, the distributions of the gas rebate payments would
give rise to no additional gross income apart from the pass-
through amounts. Because petitioners have not shown and the
record does not otherwise establish any additional amounts of
adjusted basis in their Towers Construction stock, distributions
in excess of the pass-through amounts represent additional gross
income to Briggs and Mrs. Morris, which generally would be
treated as gains from the sale or exchange of property.11 See
sec. 1368(b)(2).
Without further refinement, this analysis would result in
Briggs and the Morrises having, for each taxable year in issue,
combined redetermined gross income from the gas rebate payments
10 An amount that is required to be included in the S
corporation’s gross income on the shareholder’s tax return is
taken into account under these basis-adjustment rules only to the
extent “included in the shareholder’s gross income on his return,
increased or decreased by any adjustment of such amount in a
redetermination of the shareholder’s tax liability.” Sec.
1367(b)(1). Since we herein redetermine petitioners’ gross
incomes to include shares of Tower Construction’s gas rebate
income, their adjusted bases would be increased accordingly.
11 For taxable years 1986 and 1988, this potential problem
affects only Briggs, to the extent he received more than half of
the rebates. For taxable year 1987, this potential problem
affects only Mrs. Morris, to the extent the Morrises received
more than half of the rebates.
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Last modified: May 25, 2011