                        T.C. Memo. 1999-287



                      UNITED STATES TAX COURT



     ROBERT W. EBERLE AND DEBORAH M. EBERLE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10218-98.                     Filed August 30, 1999.



     James M. Kamman, for petitioners.

     Jeffrey A. Schlei and Michael H. Salama, for respondent.



                        MEMORANDUM OPINION


     FOLEY, Judge:   By notice dated March 30, 1998, respondent

determined deficiencies in, and penalties relating to,

petitioners' 1993, 1994, and 1995 Federal income taxes.    After

concessions, the sole issue for decision is whether discharge of

indebtedness income that is excluded, pursuant to section 108,

from the gross income of an S corporation increases the basis of
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Mr. Eberle's stock in the S corporation.   All section references

are to the Internal Revenue Code in effect for the years in

issue, and all Rule references are to the Tax Court Rules of

Practice and Procedure.

     The parties submitted this case fully stipulated pursuant to

Rule 122.   At the time the petition was filed, Robert and Deborah

Eberle resided in Laguna Beach, California.    During the years in

issue, Mr. Eberle was a shareholder in J.A.K.E. Management

Services, Inc. (J.A.K.E.), an S corporation.    In 1995, J.A.K.E.

realized, but excluded pursuant to section 108(a), $5,254,480 of

discharge of indebtedness income.

     In 1995, Mr. Eberle had suspended (i.e., unused) losses

relating to J.A.K.E. because he did not have sufficient stock

basis to deduct such losses in prior years.    On their 1995 tax

return, petitioners increased Mr. Eberle's stock basis by the

amount of his pro rata share of J.A.K.E.'s discharge of

indebtedness income, and, as a result, petitioners deducted a

portion of the suspended losses.

     Respondent contends that, pursuant to Nelson v.

Commissioner, 110 T.C. 114 (1998), affd. ___ F.3d ___ (10th Cir.,

July 6, 1999), Mr. Eberle's stock basis is not increased.    In

Nelson, we held that an S corporation's shareholder may not

increase his basis to reflect the S corporation's excluded

discharge of indebtedness income.   See id.    Petitioners do not
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attempt to distinguish Nelson, but instead contend that Nelson

was decided incorrectly.    This case is indistinguishable from

Nelson, and we need not reiterate our analysis.       Accordingly, we

hold that the discharge of indebtedness income does not increase

Mr. Eberle's stock basis.

     Contentions we have not addressed are irrelevant, moot, or

meritless.

     To reflect the foregoing,

                                              Decision will be entered

                                         under Rule 155.
