Identify Which of the Following Statements Is False

question 31

Multiple Choice

Identify which of the following statements is false.

• A)Randy is a shareholder in an S corporation. His stock basis is $10,000 and his basis in a loan he made to the corporation is $3,000. Randy's share of the corporation's ordinary loss for the current year is $11,000. Ignoring the at-risk and passive activity limitations, Randy can deduct the loss in full.
• B)A shareholder's S corporation stock basis will increase when the shareholder acts as guarantor on a corporate indebtedness.
• C)A shareholder's ratable share of the S corporation's ordinary loss reduces the adjusted basis of his/her S corporation stock. Once the basis of the stock is reduced to zero, any loss-passthrough that remains reduces the basis of S corporation debts that are owed to the shareholder.
• D)Debt basis is restored before stock basis.

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Definitions:

Control Over Work

The authority to direct and manage how a job or task is executed.

IRS Determination

An official decision made by the Internal Revenue Service on a specific tax matter.

Principal-Agent Relationship

A legal relationship where one party (the agent) acts on behalf of another party (the principal) in business transactions.

Power to Bind

The authority granted to an agent or representative to enter into contracts or agreements that legally bind the principal to the terms.