Chapter 15 corporate nonliquidating distributions
Basis Computations During a Loos Year A net loss (not including distributions) first reduces the basis for stock, and then reduces the basis of debt owed to the shareholder by the corporation, if any.Under the proposed regulations, a shareholder's stock basis at the end of a current year that is available to absorb losses is increased by the amount of the shareholder's share of the corporation's separately and non-separately stated income items.
Distributions in excess of basis are treated as gains from the sale of stock.However, if losses occur subsequent to the distribution, and those losses result in a net loss for the taxable year, the distribution (which the shareholder anticipated to be tax- free) could be converted into a taxable distribution. Under the partnership rules, however (unlike the S corporation rules), for any taxable year, a partner's basis is first increased by items of income, then decreased by distributions, and finally is decreased by losses for that year. Giant, Inc., an S Corporation, has only one shareholder, Linda Fath.Linda had a 7,000 stock basis at the beginning of 1992.Capital contributions by shareholders to the corporation; b.Separately stated income items (whether taxable or not); c. Excess of depletion deductions over basis of property subject to depletion. Non-deductible expenses that are not properly chargeable to a capital account also reduce stock basis; b.