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petitioner contends that section 301.6245-1T, Temporary Proced. &
Admin. Regs., supra, is invalid because it is illogical and
inconsistent with the Internal Revenue Code. Petitioner contends
that Congress extended the Tax Equity & Fiscal Responsibility
Act of 1982 (TEFRA), Pub. L. 97-248, 96 Stat. 324, rules only to
the shareholders of an S corporation and not to the S corporation
itself, and, thus, the regulation is contrary to the language of
the Code. Petitioner’s claim misses the mark.
The regulation is consistent with the statutory scheme for
unified audit and litigation procedures. A subchapter S item is
any item of a subchapter S corporation to the extent that
regulations provide that the item is more appropriately
determined at the corporate level than at the shareholder level.
Sec. 6245. The regulations provide that the taxes imposed at the
corporate level, namely, taxes imposed under sections 56, 1374,
and 1375, are subchapter S items because they are more
appropriately determined at the corporate level. The built-in
gains tax of section 1374 is more appropriately determined at the
corporate level because it relates to assets held by the
corporation when it converted from a C to an S corporation.
Section 301.6245-1T(a)(1)(i), Temporary Proced. & Admin.
Regs., 52 Fed. Reg. 3003 (Jan. 30, 1987), also includes in the
definition of subchapter S items the S corporation aggregate, and
each shareholder’s share of, items of loss of the corporation.
The section 1374 tax is treated as a loss sustained by the S
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