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exceeding the aggregate amount of gas rebate payments made to
them each year. Although the rules governing the tax treatment
of S corporation shareholders do not foreclose this result,
respondent has not sought this result either in the statutory
notice or at trial. In an attempt to reconcile respondent’s
position in the statutory notices and at trial with the operation
of the relevant statutory provisions (which respondent has not
cited or alluded to), we construe respondent’s position as
reflecting a misfounded concession that, for each taxable year in
issue, Briggs’ and Mrs. Morris’ pass-through incomes from Towers
Construction did not exceed the amount of payments they each
actually received. Giving effect to this deemed concession cures
the problem of attributing to petitioners aggregate amounts of
gross income exceeding the aggregate amount of the gas rebate
payments, but opens the issue of the character of the gains
represented by distributions in excess of the pass-through
amounts (as deemed conceded by respondent).12 As previously
discussed, under section 1368(b)(2), these excess distributions
12 For example, for taxable year 1986, the total gas rebate
payments were $89,175 ($50,677.50 to Briggs and $38,497.50 to the
Morrises), and each of them would have pass-through income of
$44,587.50 (one half of $89,175), without regard to respondent’s
deemed concession, which would limit the Morrisses’ pass-through
income to $38,497.50. The question then arises as to the
character of the $6,090 of rebate payments that Briggs received
in excess of his pass-through amount ($50,677.50 less
$44,587.50). Similar considerations apply for each of the
taxable years in issue, with the character of the income in
excess of the pass-through amounts becoming an issue for the
Morrises for taxable year 1987 and for Briggs again for taxable
year 1988.
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