[Anonymous]

Need help with this question….

Maui Corporation (an S corporation) reported a $72,000 ordinary loss during 2011. At the beginning of 2011, Elvis

and Frank equally owned all of Maui’s stock. On July 1, 2011, Frank gave one-fourth of his stock to his son, George.

What amount of the 2011 loss is allocated to George?

A. $4,537

B. $9,000

C. $0

D. $18,000

Answer (A) is correct. An S corporation shareholder includes his/her pro rata share of loss from the S

corporation [Sec. 1366(a)]. Sec. 1377(a) defines pro rata share as the taxpayer’s share of loss determined on a

per-day and then a per-share basis. Therefore, the amount of loss allocated to George is $4,537 ($72,000 ×

12.5% × 184 ÷ 365).

From what I’m reading and understanding, a shareholder’s holding period should NOT include the date of acquisition. Therefore, shouldn’t this question use 183 days for George (July 2 – Dec 31) and not 184, thus making his share of the loss $4,512??

Can someone clarify if there is a mistake in this question or whether I’ve lost my mind?

Thanks!