92%(24)22 out of 24 people found this document helpful
This preview shows page 21 - 23 out of 29 pages.
77If losses are suspended due to the lack of basis in S corporation stock, do the losses expire when the S election terminates?78
Troy owns 50% of Dot.Com, an e-commerce company. His S corporation stock basis at the beginning of the year is $300,000. Dot.Com has not done well this year and will report an ordinary loss of $875,000. Troy's marginal tax rate for the current year is 35%. What tax issues should Troy consider with respect to the loss?Study These FlashcardsWhat is Troy's allocable share of the Dot.Com ordinary loss?• What portion of the loss is limited by the basis of the S corporation stock and debt? The at-risk rules? The passive activity loss rules? The hobby loss rules?• If his use of the loss is limited only by the basis of the S corporation stock and debt, should Troy invest additional amounts before year-end to increase the basis of the stock and/or debt? When should such an investment be made? Before year-end? After year-end? Should he not make an additional investmentand use the loss against future profits?79Cook's Outlet has been an S corporation since its inception six years ago. On January 1 of the current year, the corporation's two equal shareholders, Davis and Dane, had adjusted bases of $150,000 and $175,000, respectively, for their S corporation's stock. The shareholders plan to have the corporation distribute land with a $50,000 adjusted basis and a $200,000 FMV in the current year. Ordinary income isexpected to be $180,000 in the current year. What tax issues should Davis and Dane consider with respect to the distribution?