208
Opinion of the Court
attribute reduction must be made after the basis adjustment and pass-through. Petitioners must pass through the discharged debt, increase corporate bases, and then deduct their losses, all before any attribute reduction could occur. Because their basis increase is equal to their losses, they have no suspended losses remaining and thus have no net operating losses to reduce. The primary arguments made in Courts of Appeals against this reading of the sequencing provision are rejected. Pp. 216-220.
182 F. 3d 1143, reversed.
Thomas, J., delivered the opinion of the Court, in which Rehnquist, C. J., and Stevens, O'Connor, Scalia, Kennedy, Souter, and Ginsburg, JJ., joined. Breyer, J., filed a dissenting opinion, post, p. 220.
Darrell D. Hallett argued the cause for petitioners. With him on the briefs were John M. Colvin and Robert J. Chicoine.
Kent L. Jones argued the cause for respondent. With him on the brief were Solicitor General Waxman, Acting Assistant Attorney General Junghans, Deputy Solicitor General Wallace, Teresa E. McLaughlin, and Edward T. Perelmuter.*
Justice Thomas delivered the opinion of the Court.
The Commissioner of Internal Revenue assessed tax deficiencies against petitioners David and Louise Gitlitz and Philip and Eleanor Winn because they used nontaxed discharge of indebtedness to increase their bases in S corporation stock and to deduct suspended losses. In this case we must answer two questions. First, we must decide whether the Internal Revenue Code (Code) permits taxpayers to increase bases in their S corporation stock by the amount of an S corporation's discharge of indebtedness excluded from gross income. And, second, if the Code permits such an in*Richard M. Lipton and Theodore R. Bots filed a brief for the Real Estate Roundtable as amicus curiae urging reversal.
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