- 41 -
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.
Page: Previous 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 NextLast modified: May 25, 2011