Question

Which of the following statements regarding S corporations income and losses of a taxpayer is false A losses can be limited by basis at Rick and passive loss rules B business income and loss is reported on page 2 of schedule E C. The income or loss is reported to the taxpayer on a schedule K-1 received from the corporation D an S corporation shareholder generally increases her/his basis in stock by cancellation of indebtedness income,even if excluded from income under IRC 108

Answer 1

Solution: an S corporation shareholder generally increases her/his basis in stock by cancellation of indebtedness income, even if excluded from income under IRC 108

Explanation: Income from the cancellation of indebtedness of an S corporation which is not included in S corporation’s income is not taken into consideration as an item of income by any shareholder. Therefore the discharge of debt income excludible under IRC 108(a) does not generally increase the stock basis of shareholder in the S corporation