Cite as: 531 U. S. 206 (2001)
Breyer, J., dissenting
"(A) Certain provisions to be applied at corporate level.
"In the case of an S corporation, subsections (a), (b), (c), and (g) shall be applied at the corporate level." 26 U. S. C. § 108(d)(7)(A).
If one reads this language literally as exclusive, both the COD exclusion (§ 108(a)) and the tax attribute reduction (§ 108(b)) would apply only "at the corporate level." Hence the COD income would not flow through to S corporation shareholders. Consequently, the insolvent S corporation's COD income would not increase the shareholder's basis and would not help the shareholder take otherwise unavailable deductions for suspended losses.
The Commissioner argues that we should read the language in this way as preventing the flow-through of the corporation's COD income. Brief for Respondent 27. He points to the language of a House Committee, which apparently thought, when Congress passed an amendment to § 108, that the Commissioner's reading is correct. H. R. Rep. No. 103-111, pp. 624-625 (1993) ("[T]he exclusion and basis reduction are both made at the S corporation level (sec. 108(d)(7)). The shareholders' basis in their stock is not adjusted by the amount of debt discharge income that is excluded at the corporate level"). At least one commentator believes the same. See Loebl, Does the Excluded COD Income of an Insolvent S Corporation Increase the Basis of the Shareholders' Stock?, 52 U. Fla. L. Rev. 957, 981-988 (2000). But see Lockhart & Duffy, Tax Court Rules in Nelson That S Corporation Excluded COD Income Does Not Increase Shareholder Stock Basis, 25 Wm. Mitchell L. Rev. 287 (1999).
The Commissioner finds support for his literal, exclusive reading of § 108(d)(7)(A)'s language in the fact that his reading would close a significant tax loophole. That loophole— preserved by the majority—would grant a solvent shareholder of an insolvent S corporation a tax benefit in the form of permission to take an otherwise unavailable deduction,
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