@Teal, is a question like this kind of what you are referring to?
Question: 12 Bill and Ken own Tax, Inc., (an S corporation) equally. In 2016, the corporation reported a $130,000 ordinary loss. Tax’s liabilities at the end of 2016 included $100,000 of accounts payable, $150,000 of mortgage payable, and a $20,000 note owed to Bill. Each owner had a $40,000 adjusted basis for his stock on January 1, 2016. Compute the loss reportable by Bill.
A. $65,000
B. $60,000
Answer (B) is correct.
Generally, if a shareholder purchases stock, the shareholder’s original basis in the stock is its cost. If a shareholder receives stock in exchange for property, the basis is the same as the property’s basis. If a shareholder lends money to the S corporation, the basis is usually the amount of the loan. If a shareholder guarantees a third-party loan to an S corporation, the loan does not increase the shareholder’s basis. If, however, the shareholder makes payments on the loan, the payments increase the shareholder’s basis. The amount of losses and deductions an S corporation shareholder can claim is limited to the adjusted basis of the shareholder’s stock. Since Bill lent $20,000 to Tax, Inc., he must increase his basis by the amount of the loan. Therefore, Bill’s basis is $60,000, and the amount of losses and deductions an S corporation shareholder can claim is limited to the adjusted basis of the shareholder’s stock.
C. $40,000
D. None of the answers are correct.
AUD - 1st - 60 (12/12), 61 (2/13), 61 (8/13), 78! (11/15)
REG - 55 (2/16) 69 (5/16) Retake(8/16)
BEC - 71(5/16) Retake (9/16)
FAR - (8/16)
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