S Corporation Loss The Viking Corporation, a calendar year corporation, formed a

Question

S Corporation Loss

The Viking Corporation, a calendar year corporation, formed and immediately elected to become an S corporation as of January 2, 2012. Brendon has owned 40% of the stock since the corporation’s inceptions, with an original investment of $27,000. In 2012 and 2013, Viking had ordinary losses of $45,000 and $30,000 respectively. During 2014, Viking reported taxable income of $60,000, all ordinary income. During 2014, Viking made cash distributions of $40,000.

How does Brendon report his share of the 2012 and 2013 losses?

How does Brendon report his share of the 2014 ordinary income and cash distribution from Viking?

What is Brendon’s basis in his shares of Viking stock on December 31, 2014?

Explanation / Answer

Brendon would have to report his share of loss as an impairment of his investment in Viking for both 2012 and 2013. For 2014, his share of profit and cash distribution , he will have to add it to its negative investment as on end 2013. As on 31st Dec 14 , the investment value of Brendon is $37000 as shown below.

Brendon's Investment on Inception $27,000 Less Share of loss in viking - 2012 @ 40% -$18,000 Less Share of loss in viking - 2013 @ 40% -$12,000 Brendon's Investment on 2013 end -$3,000 Add Share of profit in viking-2014 @ 40% $24,000 Add Share of cash distribution -2014 @ 40% $16,000 Brendon's Investment on 31st Dec 2014 $37,000

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