Please use the following fact pattern to answer THE questions . At the start of
ID: 432526 • Letter: P
Question
Please use the following fact pattern to answer THE questions . At the start of the year, the sole shareholder in an s-corporation has a basis of $80000 and debt basis of $40000. During the year, the S-corporation has a non-separately stated loss of $150000.
1. What is the maximum loss the shareholder claim on its income tax return?
A. 150000
B. 80000
C. 40000
D. 120000
E. 0
2. If the shareholder takes the maximum amount of loss on their income tax return, what is the shareholder’s stock and debt basis thereafter?
A. Stock Basis = 0 and Debt Basis = 0
B. Stock Basis = 0 and Debt Basis = 40000
C. Stock Basis = 0 and Debt Basis = (30000)
D. Stock Basis = (30000) and Debt Basis = 0
E. Stock Basis = 80000 and Debt Basis = 40000
Explanation / Answer
1(d) jan 1, 2018The requirement is to determine the earliest date on which Ace Corp. (a calendar-year corporation) can be recognized as an S corporation. Generally, an S election will be effective as of the first day of a taxable year if the election is made on or before the 15th day of the third month of the taxable year. Since there was no change in shareholders during the year, all of Ace's shareholders consented to the election, and Ace met all eligibility requirements during the preelection portion of the year, its election filed on February 10, 2018
, is effective as of January 1, 2018. Note that if either a shareholder who held stock during the taxable year and before the date of election did not consent to the election, or the corporation did not meet the eligibility requirements before the date of election, then an otherwise valid election would be treated as made for the following taxable year.
2.(a) $3,160
3.(a) $60,000