Identify which of the following statements is false.

A. Debt basis is restored before stock basis.

B. Randy is a shareholder in an S corporation. His stock basis is $10,000 and his basis in a loan he made to the corporation is $3,000. Randy's share of the corporation's ordinary loss for the current year is $11,000. Ignoring the atminus-risk and passive activity limitations, Randy can deduct the loss in full.

C. A shareholder's ratable share of the S corporation's ordinary loss reduces the adjusted basis of his/her S corporation stock. Once the basis of the stock is reduced to zero, any loss minus-passthrough that remains reduces the basis of S corporation debts that are owed to the shareholder.

D. A shareholder's S corporation stock basis will increase when the shareholder acts as guarantor on a corporate indebtedness.

Question

Business

Javier Good

12 December, 02:27

Identify which of the following statements is false.

A. Debt basis is restored before stock basis.

B. Randy is a shareholder in an S corporation. His stock basis is $10,000 and his basis in a loan he made to the corporation is $3,000. Randy's share of the corporation's ordinary loss for the current year is $11,000. Ignoring the atminus-risk and passive activity limitations, Randy can deduct the loss in full.

C. A shareholder's ratable share of the S corporation's ordinary loss reduces the adjusted basis of his/her S corporation stock. Once the basis of the stock is reduced to zero, any loss minus-passthrough that remains reduces the basis of S corporation debts that are owed to the shareholder.

D. A shareholder's S corporation stock basis will increase when the shareholder acts as guarantor on a corporate indebtedness.

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Answers (1)

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Virginia Gilbert · Answer 1

Answer: The correct answer is "D. A shareholder's S corporation stock basis will increase when the shareholder acts as guarantor on a corporate indebtedness.".

Explanation: The statement D. A shareholder's S corporation stock basis will increase when the shareholder acts as guarantor on a corporate indebtedness. is FALSE because a shareholder's S corporation stock basis does not increase when the shareholder acts as guarantor on a corporate indebtedness.