1, Mark owns 50% of an S corporation, Wick, Inc., and has a basis in that corpor
ID: 2530904 • Letter: 1
Question
1, Mark owns 50% of an S corporation, Wick, Inc., and has a basis in that corporation of $3,000 at the beginning of Year 1. At the end of Year 1, Wick reports ordinary income of $2,000 and makes a distribution to Mark of a truck with an adjusted basis of $5,000 and a fair market value of $7,000. How much income must Mark report on his personal Year 1 return from this distribution?
A.
$0
B.
$1,000
C.
$3,000
D.
$5,000
2. Mr. Sharp received a distribution from an S corporation that was in excess of the basis of his stock in the corporation. The S corporation had no accumulated earnings and profits. Mr. Sharp should treat the distribution in excess of his basis as
A.
A return of capital.
B.
A capital gain.
C.
Previously taxed income.
D.
A reduction in the basis of his stock.
A.
$0
B.
$1,000
Explanation / Answer
1. Mark would report $3,000 of income on his personal income tax return. $1,000 is from his share of the gain Wick realizes on the transaction and portion ($2,000) is attributed to the amount the distribution exceeds his basis
2- B -A capital Gain
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