§1367 — Adjustments to basis of stock of shareholders, etc.

Section 1367 provides basis adjustment rules applicable to stock in S corporations.

Section 1367 provides that basis in S corporation stock is increased by income passed through to the shareholder under section 1366(a)(1) and decreased by, inter alia, distributions not includable in the shareholder's income pursuant to section 1368.

Section 1367 provides that basis in S corporation stock is increased by income passed through to the shareholderunder section 1366(a)(1), and decreased by, inter alia, distributions not includable in the shareholder's income pursuantto section 1368.

1366(d)(1)." Section 1367 provides that a shareholder's basis is increased for items ofincome passed through to the shareholder under section 1366(a)(1) and decreased (but not below zero) by losses and deductions passed through to the shareholder under section 1366(a)(2).

Section 1367 provides that basis in S corporation stock is.increased by income passed through to the shareholder under section 1366(a) (1), and decreased by, inter alia, - 11 - distributions not includable in the shareholder' s income pursuant to section 1368 .

Section 1367 provides that basis in S corporation stock is increased by income passed through to the shareholder under section 1366(a)(1), and decreased by, inter alia, distributions not includable in the shareholder's income pursuant to section 1368 .

1366(d)(1)." Section 1367 provides that a shareholder's basis is increased for items ofincome passed through to the shareholder under section 1366(a)(1) and decreased (but not below zero) by losses and deductions passed through to the shareholder under section 1366(a)(2).

Section 1367 provides that basis in S corporation stock is increased by income passed through to the shareholder under section 1366(a)(1), and decreased by, inter alia, distributions not includable in the shareholder's income pursuant to section 1368 . Section 1368(b) provides that distributions from an S .corporation with no accumulated earnings a

r decision is whether discharge of - 2 - indebtedness income excluded from an S corporation’s gross income under section 108(a) passes through to the S corporation’s shareholders and, if it does, increases the basis of the shareholder’s stock under section 1367. We addressed this issue in Nelson v. Commissioner, 110 T.C. 114 (1998), affd. 182 F.3d 1152 (10th Cir. 1999), wherein we held that cancellation of debt (COD) income excluded by section 108(a) does not pass through to a shareholder of an

Section 1367 provides additional, special rules with respect to adjusting basis in an S corporation investment. The disagreement between the parties concerns only petitioner's cost basis in his Wedgewood investment. The parties disagree as to whether petitioner's cost basis in his Wedgewood investment includes the various payments represented by th

ns,1 the sole issue for decision is whether discharge of indebtedness (COD) income excluded under section 108(a) from the gross income of an S corporation passes through to the shareholder of the S corporation as an item of income under section 1366(a)(1)(A) and consequently increases the basis of the shareholder's stock in the S corporation under section 1367.2 The parties submitted this case fully stipulated.

1.1367-1(e), Income Tax Regs. Respondent erroneously flip-flopped steps (2) and (3) by decreasing the adjusted bases by the amounts of the shareholders' distributions before decreasing the adjusted bases by the amounts of the shareholders' pro rata shares of losses and deductions.4 We hold that the amounts of Michael's, Jody's, and

Held: In deciding whether petitioner may increase his basis in the corporate stock, sec. 108(d)(7)(A), I.R.C., applies. 2. Held, further, sec. 108(d)(7)(A), I.R.C., precludes the application of the conduit rules of subchapter S. 3. Held, further, petitioner may not increase his basis in M stock to reflect discharge of indebtedness income realized by M. Neil M. Goff, for petitioner. Virginia L. Hamilton, for respondent. HAMBLEN, Judge: Respondent determined a deficiency of $69,381 in petitioner's

Accordingly, the shareholders' stock basis under Section 1367 is not increased.

me realized and excluded from gross income under section 108(a) passes through to shareholders of a subchapter S corporation as an item of income in accordance with section 1366(a)(1)(A) and, in turn, increases the basis of the corporate stock under section 1367. FINDINGS OF FACT This case was submitted fully stipulated pursuant to Rule 122. The stipulation of facts is incorporated herein and found accordingly. Petitioner, Mel T. Nelson, resided in Denver, Colorado, at the time he filed the peti

(1), S corporations generally do not produce any current earnings and profits, sec. 1371(c)(1). Furthermore, sec. 1366 provides, in general, that the gross income of an S corporation is included pro rata in the gross income of its shareholders, and sec. 1367 provides the general rule that the basis of each shareholder's stock is increased by the items of S corporation income included in the shareholder's income. Since an S corporation's income is allocated to its shareholders when realized by th

Section 1367 then specifies adjustments to basis applicable to investments in S corporations. Basis in S corporation stock is increased by income passed through to the shareholder under section 1366(a)(1) and decreased by, inter alia, distributions not includable in the shareholder’s income pursuant to section 1368; items of loss and deduction pass

(besides adjustments to basis required by section 1367, other adjustments to basis ofstock are determined under other applicable provisions ofthe Internal Revenue Code).3 The adjusted basis of 3Sec.

ined under section 1012, adjusted as determined under section 1016. Sec. 1011. Under section 1012, basis is generally the property's cost. In the case ofstock in an S corporation, - 10 - [*10] adjustments to basis include adjustments required under section 1367.1° Sec. 1016(a)(17). On briefthe parties focus on Mr. Moore's basis in his ATS stock without regard to adjustments required under section 1367, which they suggest they will be able to calculate as part ofthe Rule 155 computations. Consequ

1368(a) provides that a "distribution ofproperty made by an S corporation with respect to its stockto which (but for this subsection) section 301(c) would apply shall be treated in the manner provided in subsection (b) or (c), whichever applies." Sec.

Generally, under section 1367 a shareholder's tax basis in the stock in, and in the loans to, an S corporation are adjusted to reflect the shareholder's share ofincome, losses, deductions, and credits -92- ofthe S corporation as calculated under section 1366(a)(1).

Generally, under section 1367 a shareholder’s tax basis in the stock in, and in the loans to, an S corporation are adjusted to reflect the shareholder’s share of income, losses, deductions, and credits of the S corporation as calculated under section 1366(a)(1).

ust 30 , 2001, capital contributions to G&D and to W&N CAL were treated by petitioners as constituting income under section 1366 (a)(1) to G&D and W&N CAL (albeit as excludable income under section 118) and therefore as restoring or increasing under section 1367 (b)(2)(B) petitioners' respective tax bases in the outstanding loans each petitioner made to G&D and W&N CAL as follows : Each Petitioner's Tax Bases in Loans To G&D and W&N CAL Increased Loans To From To G&D $112,546 $649,775 W&N CAL 3,

ust 30 , 2001, capital contributions to G&D and to W&N CAL were treated by petitioners as constituting income under section 1366 (a)(1) to G&D and W&N CAL (albeit as excludable income under section 118) and therefore as restoring or increasing under section 1367 (b)(2)(B) petitioners' respective tax bases in the outstanding loans each petitioner made to G&D and W&N CAL as follows : Each Petitioner's Tax Bases in Loans To G&D and W&N CAL Increased Loans To From To G&D $112,546 $649,775 W&N CAL 3,

Section 1367 specifies adjustments to basis applicable to investments in S corporations . Basis in S corporation stock is increased by income passed through to the shareholder under section 1366(a)(1) and decreased by, inter alia, distributions not includable in the shareholder's income pursuant to section 1368 ; items of loss and deduction passed

Section 1367 then specifies adjustments to basis applicable to investments in S corporations. Basis in S corporation stock is increased by income passed through to the shareholder under section 1366(a)(1) and decreased by, inter alia, distributions not includable in the shareholder’s income pursuant to section 1368; items of loss and deduction pass

A shareholder’s adjusted basis in his or her S corporation stock is determined under section 1367, which provides a list of the positive and negative adjustments to the shareholder’s basis in his or her stock for items of income, loss, and deductions of an - 10 - S corporation during the year.

a shareholder cannot, however, exceed the amount of the adjusted bases in the shareholder's stock and in any indebtedness of the corporation to the shareholder. See sec. 1366(d)(1). A taxpayer's adjusted bases in stock and debt are determined under section 1367. Relevant here, section 1367(a)(2)(B) provides that a taxpayer's basis in stock shall be reduced by 2 This amount, $5,103, consisted of $2,955 from petitioner's 1992 wage withholdings and the amount of overpayment claimed by petitioners

petitioners. Petitioners argue that no election was made by EMFI. Generally, the "accumulated adjustments account" is a corporate account of an S corporation which is adjusted in the same manner as adjustments are made to a shareholder's basis under section 1367. Sec. 1368(e)(1)(A). The accumulated adjustments account generally contains a total of all undistributed earnings of the corporation previously taxed to the shareholders during the period in which the corporation has been an S corporatio

— Except as provided in subparagraph (B), the term “accumulated adjustments account” means an account of the S corporation which is adjusted for the S period in a manner similar to the adjustments under section 1367 (except that no adjustment shall be made for income (and related expenses) which is exempt from tax under this title and the phrase “(but not below zero)” shall be disregarded in section 1367(b)(2)(A)) and no adjustment shall be made for Federal taxes attributable to any taxable year

The basis- adjustment rules of section 1367 are applied before application of sections 165(g) and 166(d) in a taxable year of the shareholder in which a security or debt becomes worthless.