Kamil F. and Nagwa Gowni - Page 41

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          1.1367-1(b), (d)(1), Income Tax Regs.  Respondent does not                  
          account for the Gownis’ increased basis in their Tomson stock in            
          arguing that the payments that the Gownis received from Tomson              
          during 1998 and 1999 should be included in income.  Instead,                
          respondent contends that Tomson could not have made a                       
          “distribution” to the Gownis after May 29, 1998, because Tomson’s           
          checking account balance was $8,177 on that date.  Respondent               
          appears to be arguing that a corporation’s checking account                 
          balance is determinative on the issue of whether a corporation              
          made a distribution of property to a shareholder.  Respondent               
          does not cite any authority for this proposition, and we see no             
          reason to adopt such an arbitrary approach.                                 
               Section 1368(a) directs that a distribution of property made           
          by an S corporation with respect to its stock is generally                  
          treated in the manner provided in either section 1368(b) or                 
          section 1368(c), whichever applies.  For purposes of section                
          1368(a), “property” means money, securities, and any other                  
          property, except that such term does not include stock in the               
          corporation making the distribution (or rights to acquire such              
          stock).  Sec. 317(a).  Respondent determined that the Gownis                
          received distributions of money from Tomson in 1998 and 1999                
          totaling $101,000 and $50,610, respectively.  Respondent has not            
          argued that these distributions were made to the Gownis for any             
          reason other than their ownership of Tomson stock.  Consequently,           
          section 1368(a) governs the treatment of these distributions.               





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