Gitlitz v. Commissioner
Encyclopedia
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
.
the case.
wrote the decision of the Court which reversed the Court of Appeals. He wrote that excluded discharged debt is an "item of income", which passes through to shareholders and increases their bases 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...". 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.
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
case decided in 2001. The case concerned a technical question of tax law
Tax law
Tax law is the codified system of laws that describes government levies on economic transactions, commonly called taxes.-Major issues:Primary taxation issues facing the governments world over include;* taxes on income and wealth...
dealing with the tax attributes of an S corporation
S Corporation
An S corporation, for United States federal income tax purposes, is a corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code....
.
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. 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. 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. Gitlitz appealed and the U.S. Supreme Court decided to hearCertiorari
Certiorari is a type of writ seeking judicial review, recognized in U.S., Roman, English, Philippine, and other law. Certiorari is the present passive infinitive of the Latin certiorare...
the case.
Opinion of the Court
Justice ThomasClarence Thomas
Clarence Thomas is an Associate Justice of the Supreme Court of the United States. Succeeding Thurgood Marshall, Thomas is the second African American to serve on the Court....
wrote the decision of the Court which reversed the Court of Appeals. He wrote that excluded discharged debt is an "item of income", which passes through to shareholders and increases their bases 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...". Only Justice Breyer
Stephen Breyer
Stephen Gerald Breyer is an Associate Justice of the U.S. Supreme Court. Appointed by President Bill Clinton in 1994, and known for his pragmatic approach to constitutional law, Breyer is generally associated with the more liberal side of the Court....
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.
External links
* Oral Argument audio at the OYEZ Project http://www.oyez.org/cases/2000-2009/2000/2000_99_1295- Audio of the Opinion Announcement at the OYEZ Project http://www.oyez.org/cases/2000-2009/2000/2000_99_1295/opinion