$4,000 – Correct! The IRS requires that the annual calculation of a shareholder’s S-Corporation stock basis be conducted in the following order:
1. Increased for income items, including gains;
2. Decreased for distributions;
3. Decreased for non-deductible, non-capital expenses and depletion; and
4. Decreased for items of loss and deduction.
Baker’s basis is therefore first increased by Alpha’s ordinary income of $1,000, resulting in a basis of $26,000. Since the distribution must be applied to basis before the loss, the $30,000 distribution reduces the basis to zero, leaving $4,000 as a taxable distribution. With the basis already at zero, the capital loss does not further reduce basis and simply passes through to Baker’s individual tax return.
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Distributions are applied to basis after income/gains but before loss items.
Therefore, the other IPQ which you have astutely brought forward is not in conflict.
Here is the relevant text from the IRS link below:
Quote: The order in which stock basis is increased or decreased is important. Because both the taxability of a distribution and the deductibility of a loss are dependent on stock basis, there is an ordering rule in computing stock basis. Stock basis is adjusted annually, as of the last day of the S corporation year, in the following order:
1. Increased for income items and excess depletion;
2. Decreased for distributions;
3. Decreased for non-deductible, non-capital expenses and depletion; and
4. Decreased for items of loss and deduction.
https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporation-Stock-and-Debt-Basis
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