If a Shareholder Does Not Have Sufficient Stock Basis to Deduct

question 3

Multiple Choice

If a shareholder does not have sufficient stock basis to deduct his or her share of an S corporation's losses and deductible items, what are the tax consequences?

• A)The excess losses and deductions may be carried back 3 years and then forward up to 5 years to offset other income items of identical character.
• B)The excess losses and deductions are suspended until the corporation's or shareholder's future activities generate sufficient new basis against which to deduct the losses
• C)The excess losses and deductions may not be deducted at any time and can never provide tax benefit.
• D)None of the above.

---

Definitions:

Mutual Benefit

A situation or agreement in which all parties involved gain advantages or positive outcomes.

Optimising

The process of making something as effective, perfect, or functional as possible through careful adjustments and improvements.

Organisational Conflict

Organisational conflict arises when there are disagreements or incompatibilities between individuals or groups within a company, often stemming from different values, goals, or needs.

Substantive Conflict

A disagreement over issues key to the objectives and goals of a project or organization, potentially leading to functional outcomes if managed well.