On January 1, Leon Purchased a 10% Stock Interest in an S

question 61

Multiple Choice

On January 1, Leon purchased a 10% stock interest in an S corporation for $30,000. He also loaned the S corporation $5,000 in exchange for a written promissory note. The S corporation generated a $330,000 operating loss for the year. Leon deducted his 10% share of the loss, reducing his tax basis in his stock to zero, and his tax basis in the note to $2,000. The following year, the S corporation repaid the note before Leon restored his basis in the note. What are the consequences of the loan repayment to Leon?

• A) $3,000 capital gain
• B) $3,000 ordinary income
• C) $2,000 capital gain
• D) $2,000 ordinary income

---

Definitions:

Human Being

A member of the species Homo sapiens; an individual characterized by the capacity for empathy, reasoning, and problem-solving.

Primary Goal

The main or most important objective that an individual or organization aims to achieve.

Survival

The act of continuing to live or exist, typically in spite of an ordeal or difficult circumstances.

Symbolic Self

Refers to the representation of an individual’s identity as portrayed through symbols, actions, and behaviors that are meaningful to the social context.