Sandra owns 1/3 of the outstanding stock of SA Corporation, a calendar-year S corporation. She has been a 1/3 owner of SA Corporation since it was incorporated and began operations in 2020. SA Corporation operated as a C corporation in 2020 and 2021 and converted to an S corporation effective on January 1, 2022. SA Corporation had $15,000 of accumulated earnings and profits (E&P) at the time of the conversion. Sandra does not actively participate in SA Corporation’s activities.

At the time of SA Corporation’s conversion to an S corporation on January 1, 2022, Sandra had a tax basis in her SA Corporation stock of $25,000, which reflects her cash capital contribution to the corporation at the time of its incorporation. She obtained the $25,000 for her capital contribution from selling some of her stock in XYZ Corporation. On April 1, 2022, Sandra received proceeds of $20,000 from selling additional XYZ Corporation stock and loaned the $20,000 to SA Corporation. The $20,000 loan has not been repaid as of December 31, 2023.

During 2022, SA Corporation earned interest income of $9,000 and incurred an ordinary business loss of $150,000. In addition, SA Corporation made distributions of $10,000 to each of its three shareholders, including Sandra, during 2022. During 2023, SA Corporation earned interest income of $9,000 and earned ordinary business income of $210,000. In addition, SA Corporation distributed $10,000 to each of its three shareholders, including Sandra, on July 1, 2023. Sandra had no income or deductions in 2022 and 2023 other than from SA Corporation.

What is Sandra’s debt basis at the end of 2023?

Answer rating: 100% (QA)

To calculate Sandras debt basis at the end of 2023 we need to consider th... View the full answer