C corp liquidating distribution
Capital contributions by shareholders to the corporation; b.
Finally, the tax effect of any distributions the shareholder received during the year is determined.The proposals list an ordering rule for the adjustment, either increases or decreases, of stock basis.They also include provisions on the timing of basis adjustments, basis computations during a loss year, computation of individual stock basis and the categorization of debt as basis.These shareholder assets have tax bases which may change regularly as a result of corporate events.The beginning basis for stock is the amount the shareholder invested to obtain the stock.What is the January 1, 1993, tax basis for her stock? OPERATINGRESULTS Year Ended December31,1992 Ordinaryincome$188,000 Rentalrealestateloss(37,000) Interestincome8,000 Netlong-termcapitalgain22,000 Charitablecontributions(3,000) Section170expense(7,000) Shareholder'sportionofmedicalinsurancepremiums(1,200) Non-deductibleportionofcorporationmealsand entertainmentexpense(6,000) Keypersonlifeinsurancepremiums(9,000) Even though the nondeductible items do not reduce Linda's current taxable income from the corporation, they do reduce her stock basis.
Her current taxable income from the corporation would be $207,700.
The shareholder's oil and gas depletion deduction; c. Non- separately computed losses that pass through; and e. Reducing stock basis for non-deductible items prevents a shareholder from converting a non-deductible expense at the corporate level into a deductible expense when stock is sold or a liquidating distribution is received.
Distributions in excess of basis are treated as gains from the sale of stock.
The amount of the tax basis determines the tax treatment of such items as flow-through losses and corporate distributions.
Many S shareholders have two investments in the corporation - the investment in corporate stock and loans made to the corporation.
The consequences of distributions to the shareholders and the corporation are discussed further.