Because of earlier losses, Cindy has a zero basis in her S corporation stock and a zero basis in her $10,000 loan to the corporation. During the current year, Cindy acquires additional shares of the S corporation stock for $8,000, and her share of the S corporation income is $7,000.
a. What are Cindy’s stock and debt bases on December 31?
b. What are the tax consequences to Cindy if the corporation fully repays her loan (secured by a note) on January 1 of the following year?