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establish that Bonnevista and Castle Towers were not in existence
in 1993. Moreover, retained earnings as reported on Schedule L
of Form 1120S do not necessarily equate to the S corporation’s
earnings and profits. See sec. 312; sec. 1.312-6, Income Tax
Regs.; IRS Publication 589, Tax Information on S Corporations 14
(1994, for use in preparing 1993 returns) (“If a corporation has
accumulated E&P, the retained earnings and accumulated E&P
usually will not be the same because of the special rules for
figuring retained earnings.”).14
Under current law, S corporations generally do not generate
current earnings and profits. See sec. 1371(c). An S
corporation can have accumulated earnings and profits, however,
that may arise in various ways, including: (1) As a carryover
from years in which it was a C corporation before it became an S
corporation, see Cameron v. Commissioner, 105 T.C. 380, 384
(1995), affd. 111 F.3d 593 (8th Cir. 1997); (2) as S corporation
earnings for taxable years prior to 1983, see H. Conf. Rept. 104-
737, at 227 (1996), 1996-3 C.B. 741, 967;15 and (3) as the result
14 Even if Bonnevista’s and Castle Towers’ reported retained
earnings did correlate with their accumulated earnings and
profits, there is no reason to believe that earnings and profits
of Bonnevista and Castle Towers as of the end of 1991 and 1990
respectively would accurately represent their earnings and
profits as of 1993, when petitioner’s debt was discharged.
15 H. Conf. Rept. 104-737, at 227 (1996), 1996-3 C.B. 741,
967, describing then-current law, states:
(continued...)
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