Parker is a 100% shareholder of Johnson Corp. (an S corporation). At the beginni
ID: 2589959 • Letter: P
Question
Parker is a 100% shareholder of Johnson Corp. (an S corporation). At the beginning of2010, Parker's basis in his Johnson Corp. stock was $14,000. During 2010, Parker loaned$20,000 to Johnson Corp. and Johnson Corp. reported a $25,000 ordinary business loss andno separately stated items. In 2011, Johnson Corp. reported $8,000 of ordinary businessincome.a. How much of the $25,000 ordinary loss allocated to Parker clears the tax basis hurdle fordeductibility in 2010?b. What is Parker's stock and debt basis at the end of 2010?c. What is Parker's stock and debt basis at the end of 2011?
Explanation / Answer
a. All $25,000 of the ordinary loss clears the tax basis hurdle for deductibility.
b. The first $14,000 of the loss reduces his stock basis to $0 at the end of 2010 and the remaining $11,000 reduces his debt basis to $9,000 ($20,000 - $11,000).
c. The $8,000 of ordinary income restores a portion of his Parker's debt basis. So, at the end of 2011, Parker's stock basis is $0 and his debt basis is $17,000 ($9,000 + $8,000)