hey everyone

I recently find this same question in both Becker and Wiley, but i found that they have different answer.....so which one should i rely on? Please help!

CPA-01952    

Baker, an individual, owned 100% of Alpha, an S corporation.  At the beginning of the year, Baker's basis in Alpha Corp. was $25,000.  Alpha realized ordinary income during the year in the amount of $1,000 and a long- term capital loss in the amount of $3,000 for this year.  Alpha distributed $30,000 in cash to Baker during the year.  What amount of the $30,000 cash distribution is taxable to Baker?

Becker's answer: 30,000-23,000= 7,000

Wiley's answer: 30,000-26,000= 4,000 Here is wiley's explaination: Baker will not be able to deduct the long term capital loss of 3000 this year because the cash distribution reduced his stock basis to zero. Instead the 3,000 loss will be carried forward and will be available as deduction when he has sufficient basis to absorb the loss

So...which one is correct? 4,000 or 7,000? Thx!

I would tend to agree with Becker's answer because the question is asking for the taxable portion of the distribution. While an S-Corp is generally not a taxed entity, items of income and loss (no matter their characteristics are included in the calculation of basis. So in this case:

$25000 - beginning basis

$1000 - add all income since 100% shareholder

($3000) - deduct capital loss (although seperately stated item

$23000 - ending basis

($30000) - less distribution

($7000) - taxable excess of distribution over basis to Shareholder