S Corporation: Basis of Shareholder's Interest

Question 1

The basis of an S corporation shareholder’s stock (generally, its cost) is adjusted as follows and, except as noted, in the order listed. In addition, basis may be adjusted under other provisions of the Internal Revenue Code:

Answer 1

1) Basis is increased by (a) all income (including tax-exempt income) reported on IRS Schedule K-1 and (b) the excess of the deduction for depletion (other than oil and gas depletion) over the basis of the property subject to depletion.
2) Basis is decreased by property distributions (including cash) made by the corporation (excluding dividend distributions reported on IRS Form 1099-DIV and distributions in excess of basis) reported on Schedule K-1, box 16, code D, minus the amount of such distributions in excess of the basis of the shareholder’s stock.
3) Basis is decreased by (a) nondeductible expenses and (b) the depletion deduction for any oil and gas property held by the corporation, but only to the extent the shareholder’s pro rata share of the property’s adjusted basis exceeds that deduction.
4) Basis is decreased by all deductible losses and deductions reported on Schedule K-1.

Question 2

Losses

Answer 2

reduces the shareholder’s stock basis first

remaining loss is deducted from the loan basis

Question 3

If an S corporation has no accumulated earnings and profits

Answer 3

the amount distributed to a shareholder decreases the shareholder’s basis for the stock

Question 4

What decrease basis?

Answer 4

Nonseparately stated items of loss