Dial USA, Inc. v. Comm'r of Internal Revenue
| Citation | 95 T.C. No. 1,95 T.C. 1 |
| Decision Date | 02 July 1990 |
| Docket Number | Docket No. 32537-88. |
| Parties | DIAL USA, INC., FORMERLY TRITELCO, INC., DAVID GLASSMAN, A PERSON OTHER THAN THE TAX MATTERS PERSON, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | United States Tax Court |
OPINION TEXT STARTS HERE
This case is controlled by the S corporation audit and litigation procedures contained in section 6241 et seq. R filed a motion for entry of decision pursuant to Rule 248(b). The proposed decision purports to decide the amount of each shareholder's basis in the subchapter S corporation.
HELD: The amount of a shareholder's basis in an S corporation is not a ‘subchapter S item‘ that can be decided at the corporate level pursuant to section 6241 et seq. Therefore, we lack jurisdiction to decide the amount of a shareholder's basis.
David Glassman, pro se.
William A. Heard, III, for the respondent.
Dial USA, Inc., formerly Tritelco, Inc., is a subchapter S corporation subject to the S corporation audit and litigation procedures contained in section 6241 et seq. 1 The S corporation audit and litigation procedures were added to the Code in 1982 to provide a method for unified treatment of subchapter S items among the shareholders. Subchapter S Revision Act of 1982, Pub. L. 97-354, sec. 4(a), 96 Stat. 1691-1692; see S. Rept. 97-640 at 25 (1982), 1982-2 C.B. 718, 729; Blanco Investments & Land, Ltd. v. Commissioner, 89 T.C. 1169, 1171-1172 (1987).
The matter presently before us concerns respondent's motion for entry of decision, pursuant to Rule 248(b), 2 filed April 26, 1990. Respondent's motion was served on petitioner and the tax matters person as provided by Rule 248(b), Neither petitioner nor any other shareholder has filed a response in opposition to the granting of this motion, but notwithstanding the absence of such response we conclude for the reasons hereinafter stated that respondent's motion must be denied.
On November 20, 1989, respondent filed a previous motion for entry of decision. The decision document attached to respondent's first motion included proposed findings regarding the amounts of each ‘individual shareholder's basis in Tritelco, Inc. during the taxable year 1984.‘ There was no objection to respondent's first motion. Notwithstanding the apparent agreement of all of the parties, we questioned whether we had jurisdiction to determine an individual shareholder's basis in a subchapter S corporation in a proceeding at the corporate level. We held two separate hearings on this matter. Respondent submitted a written memorandum of authorities and argued at both hearings that a shareholder's basis in a subchapter S corporation can be a ‘subchapter S item‘ and, therefore, can be an item that is within the Court's jurisdiction for purposes of proceedings under section 6291 et seq. Neither petitioner nor any of the shareholders appeared at the hearings nor did they provide the Court with any written statement of their position.
Subsequent to the second hearing, respondent withdrew his original motion for decision, filed a second motion for entry of decision and, concurrently, lodged a revised decision document which presents the specific issue now before us. Like the decision document attached to the first motion, the second proposed decision would also decide the amount of each individual shareholder's basis. However, the second proposed decision document now describes the items to be decided as ‘the individual shareholders' bases in Tritelco, Inc. during taxable year 1984 (to the extent the bases are comprised Of subchapter S items).‘
Section 6244 generally incorporates certain categories of the partnership audit and litigation provisions into the subchapter S corporation audit and litigation procedures. Two of the incorporated categories are those provisions which govern the ‘judicial determination of partnership items‘ and those that ‘relate to partnership items.‘ Sec. 6244. The partnership audit and litigation provisions were, in effect, grafted onto the subchapter S audit and litigation provisions. Blanco Investments & Land, Ltd. v. Commissioner, supra at 1174.
Section 6245 provides that ‘the term 'subchapter S item’ means any item of an S corporation to the extent regulations prescribed by the Secretary provide that, for purposes of this subtitle, such item is more appropriately determined at the corporate level.‘ (Emphasis added.) While this section gives respondent broad authority to prescribe which items are to be subjected to determination at the corporate level, it seems clear that respondent cannot prescribe such treatment for any item other than an ‘item of an S corporation.‘ The regulations do not list ‘shareholder's basis‘ as a subchapter S item.
The partnership audit and litigation provisions that were engrafted onto the subchapter S audit and litigation provisions are more specific regarding what items are determinable in the partnership proceeding. Section 6231(a)(3) defines a ‘partnership item‘ as:
any item REQUIRED TO BE TAKEN INTO ACCOUNT FOR THE PARTNERSHIP'S TAXABLE YEAR under any provision of subtitle A to the extent regulations prescribed by the Secretary provide that, for purposes of this subtitle, such item is more appropriately determined at the partnership level than at the partner level. [Emphasis added.]
It is clear that the regulatory authority to prescribe what items are to be determined at the partnership level is restricted by section 6231(a)(3) to those items ‘required to be taken into account for the partnership's taxable year.‘ In prescribing items that are to be determined in a subchapter S corporate proceeding, section 301.6245-1T(a), Temp. Proced. & Admin. Regs., 52 Fed. Reg. 3003 (Jan. 30, 1987), adheres to this restriction by describing the enumerated list of subchapter S items as ‘items which are required to be taken into account for the taxable year of an S corporation * * *.‘ Section 301.6245-1T(c)(1), Temp. Proced. & Admin. Regs., 52 Fed. Reg. 3004 (Jan. 30, 1987), states:
The critical element is that the corporation is required to make a determination with respect to a matter for the purposes stated; failure by the corporation actually to make a determination (for example, because it does not maintain proper books and records) does not prevent an item from being a subchapter S item.
Thus, whether or not a particular item is determinable by information actually available at the corporate level, does not control that item's classification as a subchapter S item. Instead, the critical factor is whether the corporation was REQUIRED to make the determination.
Respondent makes no argument that the basis of individual shareholders in an S corporation is an item which is required to be taken into account for the taxable year of an S corporation. 3 Respondent acknowledges that there are situations where the amount of an individual shareholder's basis cannot be determined from items which the corporation was required to take into account. An example would be where one shareholder purchases stock from another shareholder. In that situation, the purchase price of the stock would increase the shareholder's basis; however, there is no requirement that the purchase price of the stock be taken into account for the taxable year of the S corporation.4 Respondent argues, however, that shareholder basis can often be determined by items that are subchapter S items such as contributions to, and distributions from, the S corporation. Respondent argues that we should decide the amounts of shareholders' bases in a qualified manner that acknowledges that other factors might change the basis figures decided in the present case. He emphasizes one sentence in section 301.6245-1T(c)(3), Temp. Proced. & Admin. Regs., 52 Fed. Reg. 3004 (Jan. 30, 1987), which provides:
To the extent that a determination of an item relating to a distribution can be made from [subchapter S items] that item is a subchapter S item.
For obvious reasons, respondent de-emphasizes the next two sentences in that section of the temporary regulation which provide:
To the extent that the determination requires other information, however, that item is not a subchapter S item. SUCH OTHER INFORMATION WOULD INCLUDE THE DETERMINATION OF A SHAREHOLDER'S BASIS IN THE SHAREHOLDER'S STOCK OR IN THE INDEBTEDNESS OF THE S CORPORATION TO THE SHAREHOLDER.
Respondent asks us to abstain from a literal reading of the...
To continue reading
Request your trial
-
Tigers Eye Trading, LLC v. Comm'r of Internal Revenue
...of outside basis by adjusting it to zero. e. Misapplication of Dial USA, Inc. v. Commissioner Citing Dial USA, Inc. v. Commissioner, 95 T.C. 1, 4-6 (1990), and section 301.6231(a)(5)-1T(b), Temporary Proced. & Admin. Regs., supra, this Court has held in some cases that a partner's basis in ......
-
Thompson v. Comm'r of Internal Revenue
...53(1994); Carmel v. Commissioner, 98 T.C. 265, 268 (1992); Woody v. Commissioner, 95 T.C. 193, 202 (1990); Dial, USA, Inc. v. Commissioner, 95 T.C. 1, 6 (1990). In N.C.F. Energy Partners we noted the distinction between affected items requiring only a computational adjustment that can be di......
-
Regents Park Partners v. Commissioner
...for the partnership's taxable year under any provision of subtitle A to the extent" the regulations provide. See Dial USA, Inc. v. Commissioner [Dec. 46,686], 95 T.C. 1 (1990) (laying out the limitations and effect of a unified proceeding). The regulations do not provide that the character ......
-
Pk Ventures, Inc. v. Commissioner, Dkt. No. 5836-99.
...Rock & Lime, Inc. (Zephyr). See generally Univ. Heights v. Commissioner [Dec. 47,569], 97 T.C. 278 (1991); Dial USA, Inc. v. Commissioner [Dec. 46,686], 95 T.C. 1, 3-6 (1990). The parties disagree, however, as to the consequence of the limits on our jurisdiction with respect to affected ite......