Separately stated items include : – Tax-exempt items – Capital gains and losses (plus 1231 items) – Charitable contributions – Investment income – Passive activity gains & losses (Sub S losses are subject to both sec. 465 at risk and 469 PAL) – AMT preference/adjustment items
S Corporations – Shareholder Treatment • Operations – Loss Limitations (1366(d)) – Shareholders can deduct losses to the extent of their basis in the S corp. stock and their loans to the corporation – Any remaining loss can be carried forward and deducted when and if it is covered by basis • 1041 – suspended loss also carries over to spouse – 465/469 apply, too – at shareholder level
S Corporations - Operations • Basis in stock – Original cost • Plus: capital contributions and shareholder’s proportionate share of S income and gains • Less: distributions and shareholder’s proportionate share of S losses and deductions – NO increase to basis for debt incurred by the corporation (different rules apply to partnerships, as we will see) – No increase to basis for guaranteeing a debt of the S Corp ( Harris)
Examples 1. In 2008, S Corp is formed; J contributed $20k for a 20% stock interest. For 2008, J’s share of S Corp’s taxable income is $3,000 (the total TI was $15k). J’s basis in her stock in S Corp is now $23,000 ($20k investment plus $3k share of taxable income) 2. If in 2009, J makes a $1000 loan to S Corp, her total basis for loss purposes will go up to $24k ($23k stock, $1k loan). If J then has a $120k loss, J’s share of such loss will be $24k. She can deduct all of this on her tax return, but her basis in S Corp stock and loan goes down to zero. 3.What is S Corp also borrows $100k in 2009 from a bank? Does it matter if J guarantees it?
S Corporations - Operations PreContribution Gains & Losses: 1. Gains can be shifted: a.A contributes property with $100k, $10k basis and B contributes $100k in cashb.351 applies – then property is sold at $90k gainc.This income gets allocated equally to A and Bd.Different rule for partnerships 2. Losses – watch out for 362(e)(2) a. If property with aggregate loss is contributed to the Corp, the maximum basis in property is its FMV i. FMV $12k, AB $20k – basis of assets to S Corp would be $12k; loss is gone b. Different rule for partnerships
S Corporations - Operations Sales of S Corp Stock – Generally taxable like C Corp Stock sale • But recall basis went up for shareholder’s proportionate share of S income and gains • And down for proportionate share of S losses and deductions – Gain is generally capital, but part of it can be “collectible” gain (28%) if attributable to collectibles • Different than partnerships – see sec. 751
S Corporations - Operations Significant Differences here from Partnerships: 1. “special” allocation of deductions & income 2.
- Fall '13
- Corporation, Limited Liability Company, S corporation, S Corp, CORP