Bobby R. Hargis; Brenda J. Hargis Petitioners
John Koskinen, Commissioner of Internal Revenue Respondent
Submitted: April 11, 2018
from The United States Tax Court
BENTON, MELLOY, and GRASZ, Circuit Judges.
BENTON, CIRCUIT JUDGE.
R. and Brenda J. Hargis petitioned the Tax
Court for redetermination of a tax deficiency.
The Tax Court upheld the determination of the Commissioner of
Internal Revenue. The Hargises appeal. Having jurisdiction
under section 7482(a)(1),  this court affirms.
2007 to 2010, the Hargises bought and operated nursing homes.
Bobby was the sole owner of corporations that operated the
homes (the Operating Corporations). They were S corporations
under section 1362(a). Brenda owned interests in companies
that bought and leased the homes to the Operating
Corporations (the Nursing Home LLCs). The Nursing Home LLCs
were partnerships under 26 C.F.R. § 301.7701-3(a). All
the entities had net operating losses, which the Hargises
deducted on their joint tax returns for the years 2009 and
Commissioner issued the Hargises a notice of deficiency for
2009 and 2010. The Commissioner disallowed deduction of most
of the nursing home losses, due to the Hargises'
insufficient basis in their companies. As a result, the
Hargises owed $281, 766 more for 2009 and 2010, combined.
Hargises claim that each had greater basis in their
companies. The Tax Court ruled for the Commissioner. This
court reviews "the tax court's fact findings for
clear error and its legal conclusions de novo." Bean
v. Commissioner, 268 F.3d 553, 556 (8th Cir. 2001).
Operating Corporations-as S corporations-are
"passthrough" for tax purposes, meaning their
income and losses generally pass through to the shareholders.
See § 1366. "[H]owever, S corporation
losses may only be deducted to the extent a shareholder has
basis in the corporation." Bergman v. United
States, 174 F.3d 928, 931 (8th Cir. 1999),
citing § 1366(d). "This limitation
prevents a shareholder from deducting more than he has
invested in the corporation." Id. "The
aggregate amount of losses and deductions taken into account
by a shareholder . . . shall not exceed the sum of":
(A) the adjusted basis of the shareholder's stock in the
S corporation . . . and
(B) the shareholder's adjusted basis of any indebtedness
of the S corporation to ...