Question

At the beginning of the current year, Sandy Brewer has a zero basis in her 38 shares of stock in Lindlee, an S corporation, a zero basis in a $5000 note from Lindlee, and a $7400 carryforward of a prior year ordinary loss from Lindlee that she was unable to deduct because of the basis limitation. Early in February of the current year, Sandy was notified by Lindlee's attorney that the corporation was bankrupt. Consequently, Lindlee was defaulting on its $5000 debt to Sandy, and Sandy's 38 shares of stock were worthless. Describe to this client the consequenes of the worthlessness of a S-corporations stock. Write in memo format.

Answer 1