Current developments.

EXECUTIVE SUMMARY

* A separate return is no longer required For the day an S corporation is acquired by a consolidated group.

* Five cases strengthened the IRS position that S-level COD income does not increase shareholder stock basis.

* Several recent cases offer professional service companies a significant planning tool.

This two-part update on S corporation developments reviews and analyzes the recent past's rulings and decisions. Part II of this article addresses S operational issues, including proposed regulations on basis for loss purposes; cases on cancellation of debt income; deduction issues; and a consolidated return proposed regulation.

Part I of this article, in the October 1999 issue, addressed S eligibility, election and termination issues. Part II, below, discusses S operational issues, including proposed regulations on basis for loss purposes; cases on cancellation of debt (COD) income; deduction issues; and a consolidated return proposed regulation.

Operations

Loss Limits

One of the more common reasons for choosing S status is the ability to flow through entity-level losses to shareholders; however, a shareholder must cross several hurdles before such losses are deductible. In the recent past, both proposed regulations and a spate of court cases addressed several basis for loss purposes.

Basis: Prop. Regs. Sec. 1.1366-2(a)(6)(56) states that the basis of S stock acquired by gift is the basis used for purposes of determining loss. If a taxpayer does not have sufficient basis for loss, the allowable loss must be allocated pro rata among the types of losses (i.e., capital, ordinary, passive). Suspended losses must be included in computing the losses to be allocated. Prop. Regs. Sec. 1.1366-1(a)(2)(viii) defines tax-exempt income to exclude Sec. 109 lessee improvements and Sec. 108 COD income. (This definition is consistent with the court cases discussed below.)

Prop. Regs. Sec. 1.1367-1(f) conforms recent law changes to the partnership ordering rule for losses and accumulated adjustments accounts. For any S corporation tax year beginning after Aug. 17, 1998, Sec. 1367(g) adjustments are made in the following order: (1) any increase in basis attributable to income items described in Sec. 1367(a)(1)(A) and (B), and the excess of the deductions for depletion described in Sec. 1367(a)(1)(C); (2) any decrease in basis attributable to a distribution by the corporation described in Sec. 1367(a)(2)(A); (3) any decrease in basis attributable to noncapital, nondeductible expenses described in Sec. 1367(a)(2)(D), and the oil and gas depletion deduction described in Sec. 1367(a)(2)(E); and (4) any decrease in basis attributable to items of loss or deduction described in Sec. 1367(a)(2)(B) and (C).

Secs. 1366 and 469 limits: If a taxpayer does not have sufficient adjusted basis in stock or debt, passthrough losses are suspended until his basis is increased. The courts have consistently held that an S shareholder must have the equivalent of an "economic outlay" to generate Sec. 1366 basis for loss purposes. In Miller,(57) an S shareholder with little basis in his S stock tried to offset suspended losses with gain from the redemption of the stock. He argued that Secs. 465 and 469 allow suspended losses to be deducted on the disposition of an activity. A district court ruled that basis in S stock is determined by Secs. 1366 and 1367; losses are thus limited to stock basis before the redemption. Suspended losses are a personal attribute; if an S shareholder sells all of his stock, the suspended losses are no longer available.

In Bergmann,(58) a taxpayer owned both a profitable and an unprofitable S corporation. The profitable company had lent money to the loss company, but that did not give the taxpayer adjusted basis for loss purposes. The taxpayer restructured the existing debt so that he was owed money by the loss company and deducted the S losses. The IRS disallowed the deduction. The Eighth Circuit reversed the district court, which had held for the taxpayer, ruling that it was not clear whether the loans were genuine. There was no evidence that the shareholder made an actual economic outlay when the loans were changed. Without an economic outlay or assumption of risk, basis cannot be increased and additional losses allowed. According to the Eighth Circuit, because all the parties were related, the issue of whether the shareholder or the corporation was placed at risk when the loans were restructured was unclear.

In Schwalbach,(59) the taxpayer had rented a building to a personal service corporation for use in a business in which he materially participated, then offset the rental income with unrelated passive losses. The IRS recharacterized most of the passive (rental) income as nonpassive income under Regs. Sec. 1.469-2(f)(6), because the taxpayer materially participated. After the recharacterization, the taxpayer was limited in the amount of passive losses he could deduct. He argued that Regs. Sec. 1.469-2(f)(6) was invalid, because Regs. Sec. 1.469-4(a), which applies the recharacterization rule to a material participant of a C corporation, was promulgated without complying with the notice and comment requirements. Rejecting this argument, the Tax Court ruled that the regulation was valid, because it was in character with the original scheme for Sec. 469 passive activities.

COD Income

The AICPA has endorsed the position that COD income should increase an S shareholder's basis under Sec. 1366(a)(1)(A), while the IRS has maintained(60) that this is not appropriate. The Tax Court held in Nelson(61) that COD income is not a flowthrough item; nor is it tax-exempt income that increases basis under Sec. 1366. During the period covered, five COD income cases were decided, all following Nelson.

In William C. Witzel,(62) an S corporation declared Chapter 11 bankruptcy. The corporation's COD income had been excluded under Sec. 108(a).The taxpayer increased his S stock basis for the excluded COD income and deducted suspended S losses. The court ruled that the taxpayer could not increase stock basis by S-level excluded COD income; thus, the suspended losses were disallowed.

In Farley,(63) the taxpayer relied on Winn,(64) which originally allowed an increase in S basis for COD income, but was subsequently withdrawn. The taxpayer had increased his S stock basis by his insolvent S corporation's COD income, then deducted previously suspended losses. The Tax Court followed Nelson, ruling that a shareholder cannot increase stock basis for S-level COD income excluded under Sec. 108(a).

Similar arguments were made in Cronin(65) and Gaudiano,(66) with the IRS as victor. In Conviser,(67) an increase in stock basis was disallowed when an S corporation was a general partner in a limited partnership. The insolvent partnership received COD income, but did not exclude it, because the Sec. 108(a) insolvency exception applies at the partner level. The S corporation excluded its share of the COD income under Sec. 108(a) (1) (B). Basing its decision on Nelson, the Tax Court ruled that the shareholder could not increase his basis in his S stock to the extent the corporation realized (but did not recognize) COD income from an interest in an insolvent partnership.

Reportable Income

In the period covered, the courts were also busy determining the types and quantity of income S shareholders must report on their individual returns. Some of the cases involved the open-transaction doctrine, constructive receipt issues and beneficial shareholder rights.

Stock ownership: In Pahl,(68) the issue was when stock ownership begins for a shareholder to report S income. An attorney agreed to purchase stock in a law firm organized as an S corporation. The agreement was approved by the board of directors; the corporation amended its articles of incorporation to reflect that the taxpayer had become a shareholder, director, officer and employee. The corporation also changed its name to reflect the taxpayer's affiliation and ownership. However, the taxpayer never paid for his stock or received a stock certificate. A year later, he and the firm negotiated a separation agreement. The taxpayer contended that he was not a shareholder and did not report his share of the S income. The Ninth Circuit, affirming the Tax Court, held that the taxpayer was a beneficial shareholder under state law; thus, he was subject to tax on his share of the S income. The court noted that the state of incorporation (California) recognized beneficial shareholder interests in the absence of legal title. Thus, tax advisers need to be aware of state corporate law when working with S corporations.

In Letter Ruling 9905011,(69) an S corporation sold its assets and liquidated. One of the shareholders was a qualified subchapter S trust (QSST) created by an estate. The IRS determined that the trust's share of the gain or loss on the sale and liquidation had to be allocated and taxed to the trust, not to its income beneficiary. Similarly, Letter Ruling 9828006(70) ruled that a QSST, not the income beneficiary, was required to recognize gain on a Sec. 338(h)(10) election (deemed asset sale).

Involuntary conversions: In Letter Ruling 9909054,(71) some of an S corporation's property was condemned. The company found replacement property that it wanted to place in a separate entity for liability purposes. However, the company did not want to lose the, ability to defer gain under Sec. 1033. The IRS ruled that the company could acquire the replacement property through either a qualified subchapter S subsidiary (QSub) or a single-member limited liability company (SMLLC) without losing Sec. 1033 benefits, because neither of these entities would be a separate entity for tax purposes. This ruling allowed the taxpayer to reap the tax benefits of Sec. 1033 and to be protected against any liabilities that might encumber the replacement property. Use of either a QSub or a SMLLC should be considered by taxpayers when there are potential liability issues.(72)

Open-transaction doctrine: In Parrish,(73) the Eighth Circuit affirmed a Tax Court decision that the amount received from a Ponzi scheme operated by the taxpayer's S corporation was taxable income, not a return of capital under the open-transaction doctrine. Under this doctrine, when there is uncertainty of recovery, a taxpayer does not have to recognize income until his basis is recovered. The court ruled that the open-transaction doctrine did not apply, because the taxpayer did not prove that there was no uncertainty of recovery.

Character of income: Taxpayers prefer capital gains to ordinary income, because the tax rate is lower. A question often arises as to the character of a particular item of income. In Nahey,(74) two S corporations acquired a C corporation's assets and liabilities, including the rights to a pending lawsuit: When the lawsuit was serried, the S corporations reported the income as long-term capital gain. The Tax Court ruled that the income was ordinary income, reasoning that the lawsuit settlement was a collection of a debt, not a sale or exchange; thus, the gain could not be capital. If the acquiring S corporations had allocated part of the assets' purchase price under Sec. 1060 to the lawsuit claim, capital treatment might have been available on collection.

Deductions

Bad debts: A taxpayer is allowed a deduction under Sec. 166 for uncollected debts. For individual taxpayers, bad debts are either (1) business bad debts, deductible as ordinary losses, or (2) nonbusiness bad debts, deductible as capital losses. A business bad debt may be partially worthless and still create a loss; a nonbusiness bad debt may be deducted only if it is totally worthless.

A business bad debt must have arisen in the taxpayer's trade or business. In Kaiser,(75) an S shareholder made a loan to his S corporation. The loan was not repaid; the taxpayer took an ordinary loss deduction. The Tax Court ruled that the loss was a nonbusiness bad debt (a capital loss), because the shareholder was not an employee; the loan had not been made to protect his job. Further, even if he had been an employee, the dominant motive for making the loan was to protect his investment.

In Gaudiano, S shareholders were denied a bad debt deduction for a loan made to their bankrupt S corporation by a second S corporation they owned. The Tax Court ruled that as shareholders of the bankrupt corporation, they had guaranteed the debt; thus, it was not worthless and there was no loss.

Hobby losses: Under Sec. 165, taxpayers can deduct losses from their trade or business. However, if there is no profit motive (i.e., a hobby), deductions are limited to income from the venture. In Abbene,(76) an S corporation bred and showed horses and provided riding lessons. No horses were sold during the years in question. Only one horse was shown to win cash prizes; the rest were shown to win ribbons. The taxpayer deducted the losses as a passthrough item on his individual return. The Tax Court denied the deduction, finding that the venture had no profit motive; the taxpayer did not operate the venture as a business and did not have the expertise or knowledge to run a profitable horse farm.

Charitable contributions: In Letter Ruling (TAM) 9908039,(77) the IRS considered the timing of charitable deductions for an S corporation. The company was an accrual-basis taxpayer; its board of directors authorized a charitable contribution to a related foundation before year-end. However, the contribution was actually made in the following tax year. The corporation elected under Sec. 170(a)(2) to treat the charitable contribution as made in the current year.

The IRS addressed two issues. First, was the contribution currently deductible under Sec. 267(a)(2), which allows a deduction for payments between related parties only if the amount is includible in the recipient's gross income? The IRS ruled that Sec. 267(a)(2) does not apply to payments made to charitable organizations, because they do not report charitable contributions as income. Thus, Sec. 267 does not defer the Sec. 170(a) deduction. Second, individuals cannot make Sec. 170(a)(2) elections; they may take charitable deductions only in the year made. Because the S shareholders, not the corporation, get the charitable deduction, the S corporation cannot use the Sec. 170(a)(2) election and must report its charitable contributions in the year actually made.

If the corporation had a Sec. 1374 or 1375 tax exposure, would its taxable income be reduced by the Sec. 170(a)(2) charitable contribution?

Entertainment expenses: Sec. 274(a)(1) states that no deduction is allowed for expenses related to an entertainment activity or facility unless it is established that the item was directly related to the conduct of the taxpayer's trade or business. Regs. Sec. 1.2742(f) provides nine exceptions to the rule barring deductions for entertainment expenditures. In Catalano,(78) an S sole shareholder rented boats to his S corporation to provide entertainment for his clients. While on board there were business discussions, the main purpose for the trips was entertainment. The taxpayer reported the income on his return and the S corporation took a deduction for the expense. The Tax Court ruled that the S corporation was not allowed to deduct the lease payments, because they were related to the use of an entertainment facility, and none of the Regs. Sec. 1.274-2(f) exceptions were met. Had the taxpayer provided the boats personally, rather than through the corporation, he would not have had to report lease income.

Interest on Tax Deficiencies

The recent past also addressed the validity of Temp. Regs. Sec. 1.163-9T when individuals seek to deduct interest on tax deficiencies from trade or business activities. In Carlson,(79) an S corporation sold timeshares on an installment basis under Sec. 453(1)(2)(B). Under Sec. 453(1)(3)(A), an additional tax measured by the interest on the amount of tax deferred is due each year. The shareholder paid $2 million in interest and deducted it under Sec. 163. The IRS denied the interest deduction, ruling that the interest was personal. The Tax Court ruled that the interest was properly allocable to the S corporation's trade or business, not the shareholder's; thus, the expense was not a passthrough, but the shareholder's personal interest under Sec. 163(h)(2)(A) and Temp. Regs. Sec. 1.163-9T(b)(2)(i)(B). It is unclear whether the ruling would have been different had the corporation paid the interest, then passed the item through to the shareholder.

Sec. 1374 BIG and Valuation Issues

Sec. 1374 imposes a tax on an S corporation's net recognized built-in gain (BIG) for C corporations that elect S status. In Martin Ice Cream C0.,(80) an S shareholder sold some individual rights; the S corporation sold some corporate property to a third party by first transferring it to a Wholly owned subsidiary. The IRS tried to argue that all the rights were the parent's, resulting in a larger BIG. The Tax Court held for the taxpayer, ruling that most of the intangibles, personal contacts, oral agreements and goodwill were personal to the shareholder, not the corporation. Although the corporation may have benefited from the individual's contacts, it did not own them.

The court rejected the IRS's argument that Court Holding Co.(81) should apply, because the change in identity of the seller did not occur at the last minute to effect a transaction that had already been negotiated by the purchaser; rather, the seller changed because the deal had changed.

In Norwalk,(82) the Tax Court found that a corporate liquidation of a CPA firm did not distribute to shareholders a customer-based intangible; rather, the client base, records, workpapers and goodwill were owned by the shareholders, so there was no distribution and no gain. Further, there was no enforceable covenant not to compete; thus, when the firm was liquidated, there was little value to be taxed under Secs. 331 and 336.

Martin Ice Cream Co. and Norwalk would seem to be particularly applicable to personal service businesses (e.g., doctors, lawyers, engineers, accountants) and to intangibles created by and attributable to the personal efforts of a shareholder that are not transferred to the corporate entity. Further, this line of argument may help many small business service companies avoid the double taxation provisions of Secs. 336 and 331. It could be a significant tax planning tool for Sec. 1374 purposes (reducing goodwill includible in net unrealized BIGs) and in the valuation area.

In Boccardo,(83) the courts addressed the confluence of installment sales and BIGs. An S corporation was deemed to have constructively received income when it agreed to extend a promissory note from the corporation's president. The president had purchased property from the corporation in an installment sale; no income was to be reported on the sale until the note was paid. When the original note became due, the board of directors extended the due date. The note was paid five years later; the gain was recognized at that time. The Ninth Circuit, affirming the Tax Court, agreed with the IRS that the. S corporation had received income on the original due date, because the right to it vested at that time; thus, the corporation had constructive receipt on the note's original due date. The Ninth Circuit noted that, because of the purchaser's ability to borrow, his lack of ready cash did not prevent a finding of constructive receipt. If the extension had occurred prior to the due date, a different result might have been achieved.

Valuation is an important issue for closely held companies and S corporations. Many S shareholders want to transfer as much as possible of the company to other family members to reduce their taxable estates. In recent years, several cases have addressed valuation issues in this context.(84)

The latest in this line of cases is Est. of Bosca,(85) in which a husband and wife each owned 402.5 shares of an S corporation's voting common stock. For estate planning purposes, Mrs. Bosca transferred approximately 13.66% of her stock (55 shares) to each of her two sons. Mr. and Mrs. Bosca then exchanged all of their voting common stock for nonvoting common stock, which Mrs. Bosca transferred to her husband. Thus, the sons held all of the voting common stock; Mr. Bosca owned all the nonvoting common stock. (See page 803 for a chart of these transactions.) Mr. Bosca died within a year of the transfer. (Sec. 1014(e) prevented a step-up in basis of Mrs. Bosca's stock reacquired at Mr. Bosca's death.)

The taxpayers disclosed the recapitalization on gift tax returns, but did not treat it as a taxable gift. The IRS's position was that the exchange of voting stock for nonvoting stock resulted in a gift to the sons equal to the difference in value between the voting and nonvoting stock. The IRS's values were based on the transfer of one 50% block of stock. The estate argued that there was no gift, because there was no loss of equity; even if there were a gift, its value should be much lower than that calculated by the IRS, based on separate "naked" transfers of 25% of voting stock to each son. The Tax Court agreed with the IRS that the exchange resulted in a taxable gift, but held that the transaction was two separate gifts that had to be valued separately. Because neither son had control, in the court's view, the value of each gift was much lower than under the IRS methodology.

A recent field service advice(86) ruled that Sec. 1374 BIG tax applies to built-in capital gains recognized by a C corporation but allocated to an S corporation's short-year return under Sec. 1362(e), if the corporation owned the assets at the time of the S election and the gain economically accrued before the conversion. The IRS relied on the technical requirements of Sec. 1374 and the fact that the corporation held the sold assets on the conversion date.

Rev. Proc. 98-5687 advises that the IRS will suspend until further notice ruling on the applicability of Sec. 1374 to timber, coal or iron ore property's BIGs on the date of conversion from C to S status.

Sec. 1363(d) LIFO Recapture Tax

Letter Ruling 992201188 involved a C corporation with LIFO inventory that merged tax-free into an S corporation. Regs. Sec. 1.1363-2(a)(2) requires LIFO recapture if a C corporation uses the LIFO method for inventory in the year it transfers inventory to an S corporation in a nonrecognition transaction. The IRS ruled that the C corporation had to include LIFO recapture in income, even though the merger occurred before the regulation's effective date. Although the regulation applied prospectively only, support existed in the legislative history to require the LIFO recapture before the regulation was issued and was consistent with longstanding law under Sec. 1374.

Corporate Divisions

As was discussed above, Martin Ice Cream Co. was one of the more important small business cases in the past several years. Among other things, the case involved the split-off of a new subsidiary by its parent to one of two shareholders, in exchange for all of his parent stock. The Tax Court held that the transaction did not qualify as a D reorganization, because the new subsidiary did not meet the Sec. 355(b)(1) continuity-of-business requirement. Because the transaction's fallback position was a redemption, the major issue was the fair market value of the stock or assets distributed. The IRS's experts maintained that value to be $1.43 million; the taxpayer successfully argued it was $141,000. Thus, the gain recognized under Sec. 311 (b) was substantially reduced. A key factor was that the shareholder had continued to own the intangibles individually.

In Letter Ruling 9849013,(89) a S corporation had two businesses; the corporation's employees owned options that, if exercised, would represent approximately 10% of the company. The company wanted to give the president of one of the businesses a larger interest in it; the company proposed creating a subsidiary to which it would contribute that business's assets. The parent ,would then distribute the stock in the subsidiary pro rata to its shareholders. The president would exchange all of his parent stock for shares of the subsidiary; the parent options held by the subsidiary's employees would be converted to options in the subsidiary. The IRS ruled that the proposed transaction would be a D reorganization. Use of a QSub would not have led to the same result, because it would have to be wholly owned by the parent.

Consolidated Groups

A compliance problem that arises from interaction of the consolidated return regulations and the S rules is that three tax returns may be required for the year in which an S corporation is purchased and becomes a consolidated group member. Tax returns would be due for the S short year that ends the day before the acquisition, the one-day C short year consisting of the day of acquisition and the short tax year (included in the consolidated return) after the acquisition date. The problem exists because the consolidated return regulations state that a subsidiary does not become a consolidated group member until the end of the day on which its status changes, while under the S corporation rules, an S election terminates on the day before the terminating event.

A separate return is no longer required for the day an S corporation is acquired by a consolidated group. Prop. Regs. Secs. 1.1362-3(a) and 1.15 02-76 (b)(90) would eliminate the need to file a separate return for that day. Under the proposed regulations, an S corporation would become a member of the consolidated group at the beginning of the day that includes the acquisition, instead of at the end of the day. The new rule would result in only two short periods--an S return for the period before the S corporation became part of the group and a C return thereafter. If there was a 50% or greater purchase, the closing of the books method would be used to allocate income between the short S and short C years, under Sec. 1362(e)(6)(d).

Q Sub Payroll Tax Issues

Notice 99-6(91) offers parent S corporations and their disregarded entities (Q Subs and SMLLCs) guidance on how to treat the latter for payroll tax purposes. The parent may elect to treat the QSub as a disregarded entity for payroll tax purposes and include all the subsidiary's employees in the parent's forms (e.g., 941s, 940s, W-2s, 1099s, etc.). If this alternative is chosen and the QSub is an existing entity, the QSub would have to file final payroll tax returns. Alternatively, the QSub may file all its payroll taxes under its own taxpayer identification number. (The parent is still ultimately liable for the subsidiary's payroll taxes.) The latter option may be chosen annually. If the first option is chosen by the parent for a return period after April 20, 1999, the election is irrevocable for that QSub. However, the parent may elect the first option for some disregarded entities (e.g., newly formed entities) and the second option for existing QSubs.

For more information about this article, contact Dr. Burton at [phone] or [e-mail] or Dr. Karlinsky at [phone] or [e-mail].

Editor's note: Dr. Karlinsky is a member of the AICPA Tax Division's Corporations & Shareholders Taxation Committee.

(56) REG-209446-82 (9/8/98).

(57) Frances L. Miller, Jr., 39 F. Supp 2d 678 (ND WV, 1999)(83 AFTR2d 99-1559, 99-1 USTC [paragraph] 50,398).

(58)Larry Bergmann, 8th Cir., 4/19/99, rev'g DC Minn. (1998).

(59) Stephen Schwalbach, 111 TC 215 (1998).

(60) IRS Letter Ruling (TAM) 9541006 (7/5/95).

(61) Mel T. Nelson, 110 TC 114 (1998).

(62) William C. Witzel, TC Memo 1999-64.

(63) Harold D. Farley, DC Pa., 3/12/99 (83 AFTR2d 99-1641, 99-1 USTC 50,370).

(64) Philip D. Winn, TC Memo 1998-71, withdrawing TC Memo 1997-286.

(65) Jerome B. Cronin, TC Memo 1999-22.

(66) Salvador A. Gaudiano, TC Memo 1998-408.

(67) Michael A. Conviser, TC Memo 1999-47.

(68) Stephen D. Pahl, 150 F3d 1124 (9th Cir. 1998)(82 AFTR2d 98-5418, 98-2 USTC [paragraph] 50,602).

(69) IRS Letter Ruling 9905011 (11/4/98).

(70) IRS Letter Ruling 9828006 (4/6/98).

(71) IRS Letter Ruling 9909054 (12/3/98).

(72) See, e.g., IRS Letter Rulings 9807013 (11/13/97) and 9751012 (9/15/97), addressing like-kind exchanges.

(73) David D. Parrish, 8th Cir., 2/23/99 (83 AFTR2d 99-919, 99-1 USTC 50,293), aff'g TC Memo 1997-474.

(74) Brian L. Nahey, 111 TC 256 (1998).

(75) John J. Kaiser, TC Memo 1998-264.

(76) Martin Abbene, TC Memo 1998-330.

(77) IRS Letter Ruling (TAM) 9908039 (9/30/98).

(78) Patrick E. Catalano, TC Memo 1998-447; see Silvio, Tax Clinic, "S Corp. Can not Deduct Cost of Leasing Entertainment Facility," 30 The Tax Adviser 236 (April 1999).

(79) Robert W. Carlson, 112 TC 240 (1999).

(80) Martin Ice Cream Co., 110 TC 189 (1998).

(81) Court Holding Co., 324 US 331 (1945)(33 AFTR 593, 45-1 USTC [paragraph] 9215).

(82) William Norwalk, TC Memo 1998-279.

(83) James F. Boccardo, 9th Cir., 10/2/98 (82 AFTR2d 98-6794, 98-2 USTC [paragraph] 50,795), aff'g TC Memo 1997-171.

(84) See, e.g., Irene Eisenberg, TC Memo 1997-483; Est. of Artemus Davis, 110 TC 530 (1998).

(85) Est. of Mario E. Bosca, TC Memo 1998-251.

(86) FSA 1999-685 (2/22/99).

(87) Rev. Proc. 98-56, IRB 1998-46, 33.

(88) IRS Letter Ruling 9922011 (2/23/99).

(89) IRS Letter Ruling 9849013 (9/4/98).

(90) REG-106219-98 (12/17/98)

(91) Notice 99-6, IRB 1999-3, 12.

Hughlene A. Burton, Ph.D., CPA
Assistant Professor of Accounting
University of North Carolina--Charlotte
Charlotte, NC

Stewart S. Karlinsky, Ph.D., CPA
Graduate Tax Director
San Jose University
San Jose, CA