¹TD 8852 (12/21/99, corrected 3/8/00).

²REG-2099446-82 (8/17/98).

³See H. Rep't No. 103-111, 103d Cong., 1st Sess. (1993), p. 625.

⁴See H. Rep't No. 98-432, 98th Cong., 2d Sess. (1994), pt. 2, p. 1640; S. Rep't No. 96-1035, 96th Cong., 2d Sess. (1980), p. 2.

⁵David A. Gitlitz, 182 F3d 1143 (10th Cir. 1999), aff'g TC Memo 1998-71, cert. granted. The Supreme Court will hear oral argument on Oct. 2, 2000; for a discussion of this issue, see Briskin, "Sup. Ct. to Decide Whether COD Income Increases Basis," 31 The Tax Adviser 632 (September 2000).

⁶See Regs. Sec. 1.1366-1(a)(5)(ii).

⁷Rev. Rul. 89-7, 1989-1 CB 178, requires a partner to reduce the basis of his partnership interest by his share of the Sec. 179 expenses, even if he cannot deduct the expenses because his Sec. 179 expenses from all sources exceed the maximum allowable for the year. This rule should apply equally to S corporations and their shareholders.

⁸See Regs. Sec. 1.1366-1(c)(2)(ii).

⁹See Regs. Sec. 1.1366-3(b), Example 1.

¹⁰It can be argued that Regs. Sec. 1.1368-2(a)(5) is contrary to Sec. 1368(e)(1)(A), which states that, when there is no net negative adjustment, AAA adjustments are made in a manner similar to basis adjustments.