Gitlitz v. Commissioner, 531 U.S. 206, 15 (2001)

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220

GITLITZ v. COMMISSIONER

Breyer, J., dissenting

They would be exempted from paying taxes on the full amount of the discharge of indebtedness, and they would be able to increase basis and deduct their previously suspended losses. See, e. g., 182 F. 3d, at 1147-1148. Because the Code's plain text permits the taxpayers here to receive these benefits, we need not address this policy concern.10

* * *

The judgment of the Court of Appeals, accordingly, is reversed.

It is so ordered.

Justice Breyer, dissenting.

I agree with the majority's reasoning with the exception of footnotes 6 and 10. The basic statutory provision before us is 26 U. S. C. 108—the provision that excludes from the "gross income" of any "insolvent" taxpayer, income that cancellation of a debt (COD) would otherwise generate. As the majority acknowledges, however, ante, at 214-215, n. 6, 108 contains a subsection that sets forth a special exception. The exception, entitled "Special rules for S corporation," says:

10 The benefit at issue in this case arises in part because 108(d)(7)(A) permits the exclusion of discharge of indebtedness income from gross income for an insolvent S corporation even when the S corporation shareholder is personally solvent. We are aware of no other instance in which 108 directly benefits a solvent entity. However, the result is required by statute. Between 1982 and 1984, 108 provided that the exclusion from gross income and the reduction in tax attributes occurred at the shareholder level. See Subchapter S Revision Act of 1982, Pub. L. 97-354, 3(e), 96 Stat. 1689. This provision, which paralleled the current taxation of partnerships at the partner level, see 26 U. S. C. 108(d)(6), prevented solvent shareholders from benefiting as a result of their S corporation's insolvency. In 1984, however, Congress amended the Code to provide that 108 be applied "at the corporate level." Tax Reform Act of 1984, Pub. L. 98-369, 721(b), 98 Stat. 966. It is as a direct result of this amendment that the solvent petitioners in this case are able to benefit from 108's exclusion.

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