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.

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Definitions:

Equivalent Units

A concept used in cost accounting to express the amount of work done by an incomplete production process on units of output, converted into an equivalent number of fully completed units.

FIFO Method

"First In, First Out," an inventory valuation method where goods first added to inventory are the first ones to be sold.

Weighted-Average Method

A technique used in various contexts, such as inventory valuation and cost accounting, that calculates an average taking into account the proportionate importance of each component.

Equivalent Units

A concept in cost accounting used to allocate production costs between completed and partially completed goods.