                  T.C. Summary Opinion 2004-131



                     UNITED STATES TAX COURT



                 THERESA E. BRADY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6768-03S.           Filed September 21, 2004.


     Theresa E. Brady, pro se.

     Robert E. Marum, for respondent.



     PAJAK, Special Trial Judge:    This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   Unless otherwise

indicated, section references are to the Internal Revenue Code in

effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.   The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.
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     Respondent determined a deficiency of $420 in petitioner’s

1999 Federal income tax.

     The issue for decision is whether petitioner’s reported pro

rata share of an S corporation’s loss should be reduced after the

corporation’s reported loss was examined and adjusted by

respondent.

     Petitioner resided in Lincoln, Rhode Island, at the time she

filed her petition.

     Some of the facts in this case have been stipulated and are

so found.

     During 1999, petitioner was a revenue agent for the Internal

Revenue Service.   She also was a 10-percent shareholder of King’s

Grant Water Company (the water company), an S corporation.   The

water company sold water to people living in North Attleboro,

Massachusetts.

     For 1999, the water company filed a Form 1120S, U.S. Income

Tax Return for an S Corporation.   The water company reported an

ordinary loss of $16,211.26 on Schedule K, Shareholders’ Shares

of Income, Credits, Deductions, etc., attached to its Form 1120S.

The water company reported $1,621.13 as petitioner’s pro rata

share of the ordinary loss on Schedule K-1, Shareholder’s Share

of Income, Credits, Deductions, etc.

     For 1999, petitioner reported a distributive loss from the

water company of $1,621 (rounded) on Schedule E, Supplemental
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Income and Loss.   She attached the Schedule E to her Form 1040,

U.S. Individual Income Tax Return.

     Subsequent examination of the water company’s Form 1120S

resulted in adjustments of $13,287 and $1,157 to “Legal &

professional fees” and “Depreciation”, respectively.    This total

adjustment of $14,444 reduced the water company’s reported

ordinary loss of $16,211.26 to $1,767.    The water company

accepted these figures.    Petitioner’s pro rata share of the

corrected ordinary loss was determined to be $177 on Form 886-X,

Small Business Corporation Shareholder’s Shares of Income.

     $1,444 is 10 percent of the $14,444 adjustment.    Petitioner

claimed a loss of $1,621 on her return.    As a result of the

corporate adjustment, the $1,621 was reduced by $1,444, resulting

in a $177 corrected loss.    The reduction to petitioner’s pro rata

share of the water company’s corrected ordinary loss gave rise to

the deficiency in issue.    The notice of deficiency mentioned

under the heading “remarks” two losses totaling $20,762.      In her

petition, petitioner questioned the manner in which the water

company accounted for the two loans noted in the notice of

deficiency.

     In general, the Commissioner’s determinations are presumed

correct, and the taxpayer bears the burden of proving otherwise.

Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).       No

question has been raised with respect to the burden of proof
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under section 7491(a).    Barela v. Commissioner, T.C. Memo. 2004-

175.

       An S corporation’s loss flows through to its shareholders on

a pro rata basis.    Sec. 1366(a).   Section 6037(c) requires

consistent treatment between the S corporation and shareholder’s

returns.    It follows that adjustment to an S corporation’s loss

requires the adjustment to a shareholder’s pro rata share of that

loss.    Any remedy that petitioner may have against the water

company lies in State court, rather than with this Court.

       On this record, we conclude that petitioner’s reported pro

rata share of the water company’s loss should be reduced by the

amount determined by respondent.     Accordingly, we sustain

respondent’s determination.

       Contentions we have not addressed are irrelevant, moot, or

without merit.

       Reviewed and adopted as the report of the Small Tax Case

Division.



                                           Decision will be entered

                                      for respondent.
