CSI Hydrostatic Testers v. Commissioner
United States Tax Court
Ps are members of an affiliated group of corporations that filed consolidated Federal income tax returns. S, a subsidiary of C, declared bankruptcy and was discharged from $ 4,321,245 of debt that remained outstanding after its assets were liquidated. S did not include the $ 4,321,245 of cancellation of indebtedness (COD) income in its taxable income pursuant to sec. 108(a), I.R.C., but S did include the COD income in its earnings and profits pursuant to sec. 312(l), I.R.C.
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Ps are members of an affiliated group of corporations that filed consolidated Federal income tax returns. S, a subsidiary of C, declared bankruptcy and was discharged from $ 4,321,245 of debt that remained outstanding after its assets were liquidated. S did not include the $ 4,321,245 of cancellation of indebtedness (COD) income in its taxable income pursuant to sec. 108(a), I.R.C., but S did include the COD income in its earnings and profits pursuant to sec. 312(l), I.R.C. Additionally, C made a positive adjustment to its investment basis in its S stock pursuant to sec. 1.1502-32, Income Tax…
1Opinion of the Court
OPINION
Wells, Judge:
Respondent determined a deficiency in petitioners’ Federal income tax for their taxable year ended May 31, 1987, in the amount of $1,513,943.1 The issues for decision are: (1) Whether cancellation of indebtedness (COD) income that was excluded from the taxable income of a subsidiary corporation, under section 108(a),2 should be included in the subsidiary’s earnings and profits for purposes of computing the excess loss account of its parent corporation under section 1.1502-19, Income Tax Regs.; or, alternatively, (2) whether, for purposes of the investment basis adjustment…
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