Rory and Jordan each own one-half of Augusta, Inc., a calendar-year S corporation.  Augusta was formed in 2005 and it was previously a C Corporation.  At the beginning  of 2022, Rory and Jordan had the following bases:

Basis	Stock Basis	Loan
Rory	$80,000	$0
Jordan	$40,000	$50,000

 

Augusta had the following earnings balances at the beginning of the year:

                                                                                                                                                                            AAA                           C Corp.  E&P

                                                                                                                                                                        $ 100,000                          $ 75,000

During 2022 Augusta had the following operating items:

• Ordinary Income                                 $ 185,000
• Interest Income                                          5,000
• Section 179 Deduction                        130,000

Augusta distributed the following amounts during 2022:

Rory $90,000

Jordan $90,000

No loans were repaid during the year and no equity account elections of any kind have been made by Augusta or its shareholders.  Assume that the Section 179 deduction does not exceed any Section 179 deduction limits.

Required: 

                        A.   Compute end of year stock basis and debt basis for the shareholders.  

                        B.   Compute end of year AAA and C corporation E&P balances for Augusta.  

                        C.   Describe the tax consequences to each Rory and Jordan.  EXPLAIN.

Answer rating: 100% (QA)

Calculating Tax Implications for Rory and Jordan in Augusta Inc A End of Year Stock Basis and Debt B... View the full answer