Debt discharge income and S corporations: An analysis after the tax court decision in Winn.

Excerpt: “How do the debt discharge rules work if the taxpayer is an S corporation…? Does the debt discharge income flow through separately to the shareholder? If so, then whether or not the income is taxable depends on whether the individual shareholder is insolvent, and not the corporation itself. Or is the question of insolvency determined at the corporate level? If that is the case, then how is the corresponding reduction of tax attributes handled? Another significant issue is the effect of the debt discharge exclusion on the tax basis of the shareholder’s stock…These are some of the issues that we discuss in this article…” p.46