Robert W. Eberle and Deborah M. Eberle v. Commissioner , 1999 T.C. Memo. 287 ( 1999 )

T.C. Memo. 1999-287UNITED STATES TAX COURT
ROBERT W. EBERLE AND DEBORAH M. EBERLE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 10218-98. Filed August 30, 1999.
James M. Kamman, for petitioners.
Jeffrey A. Schlei and Michael H. Salama, for respondent.
MEMORANDUM OPINION
FOLEY, Judge: By notice dated March 30, 1998, respondent
determined deficiencies in, and penalties relating to,
petitioners' 1993, 1994, and 1995 Federal income taxes. After
concessions, the sole issue for decision is whether discharge of
indebtedness income that is excluded, pursuant to section 108,
from the gross income of an S corporation increases the basis of
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Mr. Eberle's stock in the S corporation. All section references
are to the Internal Revenue Code in effect for the years in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
The parties submitted this case fully stipulated pursuant to
Rule 122. At the time the petition was filed, Robert and Deborah
Eberle resided in Laguna Beach, California. During the years in
issue, Mr. Eberle was a shareholder in J.A.K.E. Management
Services, Inc. (J.A.K.E.), an S corporation. In 1995, J.A.K.E.
realized, but excluded pursuant to section 108(a), $5,254,480 of
discharge of indebtedness income.
In 1995, Mr. Eberle had suspended (i.e., unused) losses
relating to J.A.K.E. because he did not have sufficient stock
basis to deduct such losses in prior years. On their 1995 tax
return, petitioners increased Mr. Eberle's stock basis by the
amount of his pro rata share of J.A.K.E.'s discharge of
indebtedness income, and, as a result, petitioners deducted a
portion of the suspended losses.
Respondent contends that, pursuant to Nelson v.
Commissioner, 110 T.C. 114 (1998), affd. ___ F.3d ___ (10th Cir.,
July 6, 1999), Mr. Eberle's stock basis is not increased. In
Nelson, we held that an S corporation's shareholder may not
increase his basis to reflect the S corporation's excluded
discharge of indebtedness income. See id. Petitioners do not
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attempt to distinguish Nelson, but instead contend that Nelson
was decided incorrectly. This case is indistinguishable from
Nelson, and we need not reiterate our analysis. Accordingly, we
hold that the discharge of indebtedness income does not increase
Mr. Eberle's stock basis.
Contentions we have not addressed are irrelevant, moot, or
meritless.
To reflect the foregoing,
Decision will be entered
under Rule 155.