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B. Loss Carryover
Petitioner deducted a carryover of Topaz’s claimed loss for
1997 on her 2000 Federal income tax return. Taxpayers are
required to maintain adequate records to substantiate claimed
losses, and taxpayers bear the burden of proving that they are
entitled to claimed losses. Sec. 6001; Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933).
Section 1366(a) provides, generally, that income, losses,
deductions, and credits of an S corporation are passed through
pro rata to its shareholders on their individual income tax
returns. Secs. 1363(a), 1366(a). Section 1366(b) provides that
the character of each item of income is determined as if it were
realized directly from the source from which the corporation
realized it, or incurred in the same manner as it was by the
corporation. A shareholder’s gross income includes a pro rata
share of the S corporation’s gross income. Sec. 1366(c). The
shareholder’s basis, once computed, limits the amount of losses
and deductions that may be taken into account by a shareholder
for the taxable year. Sec. 1366(d). Any losses and deduction
that the shareholder is not entitled to deduct currently are
carried forward. Id.
Petitioner submitted as evidence a document entitled
“Unanimous Written Consent of the Board of Directors of Topaz
Group, Inc.” that listed 836,540 Topaz shares issued to
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