No, not a typo for the 1884 Joris-Karl Huysmans Symbolist novel. This is a catch-up for which I’m grateful to my colleague Prof. Bryan Camp, a Texas non-Technophobe, for picking up on Michael G. Parker and Julie A. Parker, T. C. Memo. 2023-104, filed 8/10/23, which I missed. Thanks, Prof.

Briefly, Mike was sole officer, director and shareholder of a Sub S that was the sole member of a bunch tiered LLCs (hi, Judge Holmes), wherewith Mike carried on his real estate wheeling and dealing. The whole shootin’ march came unglued, with unrelated buyers taking over the loans which encumbered both the real estate and the LLC memberships which the Sub S owned. The loans were nonrecourse as against the Sub S, but Mike had personally guaranteed the loans.

Mike claimed Section 108(a)(1)(B) insolvency exclusion of the cancellation of debt resulting from the unrelated buyers taking over the loan obligations and letting the Sub S off the hook. Passthrough, right?

Judge Nega says wrong. A Sub S is a corporation; it exists separately from its shareholder. Attributes and incidents may pass through; when tax events in the same year impact both Sub S and shareholder, Tax Court has unified jurisdiction over both. When nonrecourse debt cancellation is connected with the sale of the asset encumbered thereby per Section 61(a)(3), the Sub S had to add the cancelled debt as part of its gain on the sale of the assets. That Mike had guaranteed the debt and was personally on the hook had nothing to do with what the Sub S was required to recognize on the sale. And once recognized, flowed through.

Running everything through the unrecognized LLCs owned by the passthrough Sub S does not change the result.

This is a tangled fact pattern, so a classic YMMV is warranted here.