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until he learned if his appeal would be successful. Under these
circumstances, we hold that the payment and related interest are
taxable in the years petitioner received them.
B. Whether Petitioner Must Include in His Income a Distributive
Share of Green Hills’ Income
The next issue for decision is whether petitioner must
include in his income for 2000 a distributive share of Green
Hills’ income from January 1 to October 13, 2000.
1. Taxation of S Corporation Income
Generally, income, losses, deductions, and credits of an S
corporation are passed through pro rata to shareholders on their
individual income tax returns based on days of ownership whether
or not the income is distributed. Secs. 1363(a), 1366(a),
1366(c), 1377(a)(1). Ordinarily, the person who would be taxable
on a dividend if the corporation were a C corporation is
considered to be the shareholder of an S corporation. Sec.
1.1361-1, Income Tax Regs.11
11 Sec. 1.1361-1, Income Tax Regs., provides in part:
(e) Number of Shareholders. (1) * * *
Ordinarily, the person who would have to include in
gross income dividends distributed with respect to the
stock of the corporation (if the corporation were a C
corporation) is considered to be the shareholder of the
corporation. * * * The person for whom stock of a
corporation is held by a nominee, guardian, custodian,
or an agent is considered to be the shareholder of the
corporation for purposes of this paragraph (e) and
paragraphs (f) and (g) of this section. * * *
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