Serena and Venus each own one-half of SouthWestern, Inc., a calendar-year S corporation. SouthWestern was formed in
Question:
Serena and Venus each own one-half of SouthWestern, Inc., a calendar-year S corporation. SouthWestern was formed in 2005 and it has never been a C Corporation. At the beginning of 2018 Serena and Venus had the following bases:
Stock Basis Loan Basis
Serena $ 10,000 $ 0
Venus 6,500 5,000
SouthWestern made no distributions during the year. No loans were repaid during the year. SouthWestern had a AAA balance at the beginning of the year of $50,000. During 2018 SouthWestern had the following operating items:
Ordinary Income $ 8,500
Interest Income 500
Net Long Term Capital Loss 30,000
Required:
A. Compute the end of year stock basis and debt basis for both of the shareholders.
B. Compute the end of year AAA balance for SouthWestern.
C. Describe the tax consequences to each Serena and Venus including any impact on next year. EXPLAIN.
Federal Taxation 2021 Corporations, Partnerships, Estates & Trusts
ISBN: 9780135919460
34th Edition
Authors: Timothy J. Rupert, Kenneth E. Anderson, David S. Hulse