opining that an insolvent S corporation’s COD income could not pass through to a solvent shareholder and the “equivalence rule of section 1366(b)” could not apply
How later courts described this case
- opining that an insolvent S corporation’s COD income could not pass through to a solvent shareholder and the “equivalence rule of section 1366(b)” could not apply
- “An exclusion that is subject to an offset (the tax attribute reductions) and may be subject to taxation in the future (that is, excluded from gross income for the taxable year) does not signify or indicate an item of income that is necessarily tax exempt on a permanent basis.”
Written by the judges who cited it.
The opinion
Foley, J., concurring in result only: I agree with the majority’s holding. Section 108(d)(7)(A) explicitly provides that subsections (a), (b), (c), and (g) of section 108 are to be applied at the corporate level. I write separately to emphasize that after the application of section 108(b) and the resulting reduction of tax attributes (i.e., MAl’s net operating loss) there are no “items of income”, tax exempt or otherwise, to which section 1366(a) may apply. The legislative history accompanying the Bankruptcy Tax Act of 1980 states that after a taxpayer reduces its tax attributes, “Any further remaining debt discharge amount is disregarded, i.e., does not result in income or have other tax consequences.” S. Rept. 96-1035, at 2 (1980), 1980- 2 C.B. 620 , 621. Thus, there are no “items of income”, and, as a result, no basis adjustment pursuant to section 1367. Accordingly, there is no need to distinguish between “tax-exempt” and “deferred” income.
Swift, Parr, Whalen, and Colvin, JJ., agree with this concurring in result only opinion.