Chuck, Cindy, and Clay are equal shareholders of Able Corporation common stock. Able was incorporated in the current year. Able elects to be treated as an S corporation starting in its initial year. Chuck, Cindy, and Clay each contributed $10,000 cash to Able in exchange for their common stock. Able borrows $60,000 from a bank, and Chuck, Cindy, and Clay personally guaranteed the corporation’s loan. In the current year, Able suffers a $90,000 ordinary loss. How much of the corporation’s loss can Chuck, Cindy, and Clay deduct? (Assume the at-risk and passive activity loss limitation rules do not apply.)
A partial list of research sources is:
• Sec. 1366(d)(1)
• Estate of Daniel Leavitt v. CIR, 63 AFTR 2d 89-1437, 89-1 USTC ¶9332 (4th Cir., 1989)
• Edward M. Selfe v. U.S., 57 AFTR 2d 86-464, 86-1 USTC ¶9115 (11th Cir., 1986)
• Dennis E. Bolding v. U.S., 80 AFTR 2d 97-5481, 97-2 USTC ¶50,553 (7th Cir., 1997).