Gitlitz v. Commissioner

Gitlitz v. Commissioner
Argued October 2, 2000
Decided January 9, 2001
Full case name David A. Gitlitz, ex ux., et al. v. Commissioner of Internal Revenue
Citations 531 U.S. 206 (more)
121 S. Ct. 701; 148 L. Ed. 2d 613
Prior history On Writ of Certiorari to the United States Court of Appeals for the Tenth Circuit
Holding
The Internal Revenue Code permits taxpayers to increase bases in their S corporation stock by the amount of an S corporation's discharge of indebtedness excluded from gross income and the increase occurs before taxpayers are required to reduce the S corporation's tax attributes.
Court membership
Chief Justice
William Rehnquist
Associate Justices
John P. Stevens · Sandra Day O'Connor
Antonin Scalia · Anthony Kennedy
David Souter · Clarence Thomas
Ruth Bader Ginsburg · Stephen Breyer
Case opinions
Majority Thomas, joined by Rehnquist, Stevens, O'Connor, Scalia, Kennedy, Souter, Ginsburg
Dissent Breyer
Laws applied
Internal Revenue Code

Gitlitz v. Commissioner, 531 U.S. 206 (2001), was a United States Supreme Court case decided in 2001. The case concerned a technical question of tax law dealing with the tax attributes of an S corporation.

Background

In 1991, P. D. W. & A., Inc., an insolvent corporation taxed under Subchapter S, excluded its entire discharge of indebtedness amount from its gross income.[1] David Gitlitz and other shareholders were assessed tax deficiencies because they used the untaxed discharge of indebtedness to increase their basis in S corporation stock and to deduct suspended losses. Eventually, the Tax Court held that Gitlitz could not use the S corporation's untaxed discharge of indebtedness to increase their basis in corporate stock.[2] In affirming, the Court of Appeals held that the discharge of indebtedness amount first had to be used to reduce certain tax attributes of the S corporation and that only the leftover amount could be used to increase their basis.[3] Gitlitz appealed and the U.S. Supreme Court decided to hear the case.

Opinion of the Court

Justice Thomas wrote the decision of the Court which reversed the Court of Appeals. He wrote that excluded discharged debt is an "item of income",[4] which passes through to shareholders and increases their basis in an S corporation's stock and that pass-through is performed before the reduction of an S corporation's tax attributes. He wrote that it "simply does not say that discharge of indebtedness ceases to be an item of income when the S corporation is insolvent. Instead it provides only that discharge of indebtedness ceases to be included in gross income." "In order to determine the 'tax imposed,' an S corporation shareholder must adjust his basis in his corporate stock and pass through all items of income and loss. Consequently, the attribute reduction must be made after the basis adjustment and pass-through."[5]

Only Justice Breyer did not join Thomas's opinion. He disagreed with the statutory interpretation of the decision, believing that examining the direct language of the provision would have led the Court to a contrary result.[6]

See also

References

  1. ↑ 531 U.S. 206 at 209
  2. ↑ 531 U.S. 206 at 211
  3. ↑ 531 U.S. 206 at 211-212
  4. ↑ 531 U.S. 206 at 217
  5. ↑ 531 U.S. 206 at 216-218
  6. ↑ 531 U.S. 206 at 221, Breyer, J., dissenting.
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