For each of the following independent statements, indicate whether the transacti

Question

For each of the following independent statements, indicate whether the transaction will increase (+), decrease (-), or have no effect (NE) on the basis of a shareholder’s stock in an S corporation.

a. Expenses related to tax-exempt income.

b. Short-term capital gain.

c. Nonseparately computed loss.

d. Section 123 gain.

e. depletion not in excess of basis.

f. Separately computed income.

g. Nontaxable return-of-capital distribution by the corporation.

h. Advertisement expenses.

i. Business gifts in excess of $25.

j. Depreciation recapture income.

k. Dividends received by the S corporation from an investment in ExxonMobil stock.

l. LIFO recapture tax paid.

m. Long-term capital loss.

n. Cash distribution to shareholder out of AAA.

Explanation / Answer

a. Expenses related to tax-exempt income. = Decrease

b. Short-term capital gain. = Increase

c. Nonseparately computed loss = Decrease

d. Section 123 gain. = Increase

e. depletion not in excess of basis. = Decrease

f. Separately computed income = Increase

g. Nontaxable return-of-capital distribution by the corporation = Decrease

h. Advertisement expenses = Decrease

i. Business gifts in excess of $25 = Decrease

j. Depreciation recapture income = Increase

k. Dividends received by the S corporation from an investment in ExxonMobil stock. = Increase

l. LIFO recapture tax paid =Decrease

m. Long-term capital loss = Decrease

n. Cash distribution to shareholder out of AAA. = Decrease

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