*Honorable Frank J. Magill, Senior Circuit Judge, United States Court of

Appeals for the Eighth Circuit, sitting by designat ion. 

## F I L E D United States Court of Appeals Tenth Circuit 

### JUL 6 1999 

### PATRICK FISHER Clerk PUBLISH UNITED STATES COURT OF APPEALS

TENTH CIRCUIT
MEL T. NELSON, Petitioner-Appellant,
v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. No. 98-9014

APPEAL FROM UNITED STATES TAX COURT

(T.C. No. 20811-95) John M. Colvin of Chicoine & Hallett, P.S., Seattle , Washington, (Neil M. Goff, of Otten, Johnson, Robinson, Neff & Ragonetti, P.C. , Denver, Colorado, on the brief), for the appellant. Edward T. Perelmuter (Loretta C. Argrett, AssistantAttorney General, and Teresa E. McLaughlin with him on the brief), of the Tax Di vision, Department of Justice, Washington, D.C., for the appellee.
Before TACHA, MAGILL, *and BRISCOE , Circuit Judges.
BRISCOE , Circuit Judge.-2-

The Commissioner of Internal Revenue assessed a taxdeficiency against Mel T. Nelson after determining Nelson had improper ly utilized excluded discharge of indebtedness income to adjust his subc hapter S corporate basis. The United States Tax Court upheld the Commissioner’s d eficiency determination and Nelson appeals. We exercise jurisdiction pursuant to 26 U.S.C. § 7482(a)(1) and affirm. Nelson was the sole shareholder of Metro Auto, Inc. , a subchapter S corporation. In 1991, Metro Auto had $654,788 in n et operating losses. The corporation also realized $2,030,568 in discharge o f indebtedness income from disposition of all its assets and a related agreeme nt with creditors. Metro Auto was insolvent both before and after the events givi ng rise to the discharge of indebtedness income. The corporation excluded the full amount of the canceled indebtedness from gross income on its 1991 federal tax return. Nelson treated Metro Auto’s discharge of indebtedne ss income as if the “pass-through” principles and basis adjustment prov isions normally applicable to subchapter S corporate shareholders were in play. He thus increased his basis in his Metro Auto stock by $1,375,790--the amount the discharge of indebtedness income exceeded net operating losses. Nelson dispo sed of his stock shortly thereafter and claimed a $2,403,996 long-term capit al loss on his 1991 individual federal tax return. The Commissioner determined Ne lson could not use the-3-

corporation’s excluded discharge of indebtedness in come to increase the basis in his stock and denied $1,375,790 of Nelson’s purport ed long-term capital loss. Nelson contested the deficiency determination in Tax Court. In a “reviewed decision,” the Tax Court held, without di ssent, that discharge of indebtedness income of an insolvent subchapter S co rporation, which is excluded from gross income under Internal Revenue Code § 108 (a), 26 U.S.C. § 108(a), does not pass through to the shareholders of the subchapter S corporation. See Nelson v. Commissioner , 110 T.C. 114 (1998). The court thus concluded a shareholder of an insolvent subchapter S corporatio n may not increase the adjusted basis of his stock based on the corporatio n’s untaxed discharge of indebtedness income. For the same reasons outlined in our published opinion filed today in Gitlitz v. Commissioner , Nos. 98-9009 and 98-9010, we AFFIRM the decision of the Tax Court.