Taxation

Heather, a 57% owner of an S corporation, has a stock basis of zero at the beginning of the year. Heather’s basis in a $28,000 loan made to the S corporation and evidenced by a corporate note has been reduced to zero by pass-through losses. During the year, her net share of corporate ordinary income is $13,000. At the end of the year, Heather receives a $15,000 distribution.

Discuss the related income tax consequences.

Palin, Inc., a calendar year S corporation, is owned equally by four shareholders, Alice, Bill, Charles, and Donald. The company owns a plot of land that was purchased for $140,000 three years ago. On November 24, 2010, when the land is worth $220,000, it is distributed to Donald. Assuming Donald’s basis in his S corporation stock is $290,000 on the distribution date, what are the tax ramifications?

An S corporation’s profit and loss statement shows net profits of $101,000 (book income). The corporation has three equal shareholders. From supplemental data, you obtain the following information about some items that are included in the $101,000.

Determine nonseparately computed S corporation income or loss.

Solution:

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