Gitlitz v. Commissioner
United States Supreme Court
531 U.S. 206 (2001)
David Gitlitz and Philip Winn (plaintiffs) were shareholders in an S corporation. The corporation was insolvent, owed over $2,000,000, and realized nearly that amount of discharged indebtedness on its tax returns. Gitlitz and Winn increased their bases in the company’s stock by their pro rata share of the discharged indebtedness and claimed losses on their personal tax returns under the theory that the indebtedness was income subject to pass-through under § 1366 of the Internal Revenue Code. The tax commissioner denied their loss deductions, finding that they were inappropriate because neither Gitlitz nor Winn actually or economically incurred those losses. The tax court and appellate court upheld the commissioner's decision, and Gitlitz and Winn appealed to the United States Supreme Court, arguing that they should be able to claim discharge-of-indebtedness income (DOI) on their personal tax returns as loss of income.
Rule of Law
Holding and Reasoning (Thomas, J.)
Dissent (Breyer, J.)
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