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litigation procedures apply to tax items of an S corporation that
are more appropriately determined at the corporate level. Thus,
only the tax items of the corporation constitute subchapter S
items. S corporations are liable for certain corporate level
taxes, including the section 1374 built-in gains tax. Since this
tax is assessed against and paid directly by the S corporation,
the shareholders of the corporation are not liable for the tax.
Determinations whether the S corporation owned the appreciated
asset on the first day of its first taxable year as an S
corporation, and as to the fair market value and adjusted basis
of the asset as of that time, are appropriately made at the
corporate level and must be made before determining whether the
built-in gains tax applies to the disposition of the asset. The
section 1374 built-in gains tax is a subchapter S item because it
is determined solely based on events at the corporate level (as
opposed to an affected item or nonsubchapter S item that requires
a factual determination at the shareholder level).
We conclude that the section 1374 built-in gains tax is a
subchapter S item and that we lack jurisdiction in this
proceeding to decide whether the tax applies for petitioner’s
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