S shareholders cannot increase bases using corporate debt.

• Jurisdiction: United States
• Author: Kautter, David J.
• Date: 01 January 2002

The Eighth Circuit, affirming the Tax Court, has held that S shareholders could not increase their tax bases in the corporation for corporate debt when the debt did not run directly to them (Est. of Alton Bean, 10/1/01).

Alton Bean and his son, Gary, operated a trucking company, Alton Bean Trucking Company (Company), and treated the business as a partnership. The Beans formed an S corporation, Alton Bean Trucking, Inc. (S Corporation), and continued running both businesses. On Dec. 31, 1992, Company sold all of its assets to S Corporation, which assumed all of Company's liabilities. S Corporation experienced net operating losses in 1990 and 1991. The shareholders claimed a pro-rata share of the losses on their individual tax returns. The IRS disallowed the losses...