C:11-47 Post-Termination Loss Use. Stein Corporation, an S corporation, has 400 shares of stock
outstanding. Chuck and Linda own an equal number of these shares, and both actively
participate in Stein’s business. Chuck and Linda each contributed $60,000 when they
organized Stein on September 10, 2008. Start-up losses during 2008 resulted in Stein
reporting a $210,000 ordinary loss. Stein’s activities have since become profitable, and
the corporation voluntarily revokes the S election on March 1, 2009, with no prospective
revocation date being specified. In 2009, Stein reports $360,000 of taxable income
($30,000 per month). Stein makes no distributions to its shareholders in either year.
a. What amount of loss can Chuck and Linda deduct in 2008?
b. What amount of loss do Chuck and Linda carry over to 2009?
c. If Chuck reported only $5,000 of other business income in 2008, what happens to the
“excess” deductible S corporation losses?
d. What portion of the loss carryover from Part b can Chuck and Linda deduct in 2009?
What happens to any unused portion of the loss?
e. What advice can you offer to Chuck and Linda to enhance their use of the Stein loss?
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