                        T.C. Memo. 2000-23



                      UNITED STATES TAX COURT



         STEPHEN L. AND DORALYNN GOODMAN, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent

           JOHN R. AND PHYLLIS G. RAY, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 15386-98, 16864-98.         Filed January 19, 2000.



     Howard A. Weinberger, for petitioners.

     Kenneth L. Bressler and Ann S. O’Blenes, for respondent.




                        MEMORANDUM OPINION


     FOLEY, Judge:   By notice dated June 24, 1998, respondent

determined deficiencies in, and penalties relating to, Stephen
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and Doralynn Goodman's 1994 and 1995 Federal income taxes.    By

notice dated July 16, 1998, respondent determined deficiencies

in, and penalties relating to, John and Phyllis Ray's 1993 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 bases of petitioners’ S corporation

stock.   The parties submitted this case fully stipulated pursuant

to Rule 122.    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.

     At the time the petitions were filed, petitioners resided in

Plano, Texas.   During 1993, Messrs. Goodman and Ray were

shareholders in Scientific Plastics, Inc., an S corporation.

That year, Scientific Plastics, Inc., realized, but excluded

pursuant to section 108(a), $1,583,365 of discharge of

indebtedness income.

     On December 31, 1993, petitioners had suspended (i.e.,

unused) losses relating to Scientific Plastics, Inc.    Petitioners

increased their stock bases by the amount of their pro rata

shares of Scientific Plastics, Inc.’s, discharge of indebtedness

income and, on their 1993 tax returns, deducted their losses.

     Respondent contends that, pursuant to Nelson v.

Commissioner, 110 T.C. 114 (1998), affd. 182 F.3d 1152 (10th Cir.
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1999), the $1,583,365 of discharge of indebtedness income does

not result in a basis increase in the Scientific Plastics, Inc.,

stock.   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 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 petitioners’ stock bases.

     To reflect the foregoing,

                                              Decisions will be entered

                                         under Rule 155.
