Rath v. Commissioner
United States Tax Court
I, an S corporation, purchased stock in RC and shortly thereafter sold the stock at a significant loss. The RC stock qualifies as "section 1244 stock" under sec. 1244(c), I.R.C. Ps, shareholders in I, reported the loss that I incurred on the sale of the RC stock as an ordinary loss under sec. 1244(a), I.R.C.Held: The ordinary loss treatment prescribed in sec. 1244(a), I.R.C., only extends to stock issued to individual taxpayers and partnerships.
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I, an S corporation, purchased stock in RC and shortly thereafter sold the stock at a significant loss. The RC stock qualifies as "section 1244 stock" under sec. 1244(c), I.R.C. Ps, shareholders in I, reported the loss that I incurred on the sale of the RC stock as an ordinary loss under sec. 1244(a), I.R.C.Held: The ordinary loss treatment prescribed in sec. 1244(a), I.R.C., only extends to stock issued to individual taxpayers and partnerships. Because the RC stock was issued to I, an S corporation, it follows that Ps are not entitled to report the loss as an ordinary loss in this case.
1Opinion of the Court
OPINION
Hamblen, Chief Judge:
Respondent determined a deficiency of $15,000 in petitioner Virgil D. Rath’s Federal income tax liability for the 1986 taxable year. In addition, respondent determined a deficiency of $48,999 in petitioners James R. Sanger and Marjorie F. Sanger’s joint Federal income tax liability for the 1986 taxable year.
After concessions, the sole issue for decision is whether Virgil D. Rath and James R. Sanger, shareholders of a sub-chapter S corporation, are entitled to report an ordinary loss deduction under section 1244(a) arising from a sale of “section 1244 stock” by the…
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