In Applying the Basis Limitation on the Deduction of S

question 88

Multiple Choice

In applying the basis limitation on the deduction of S corporation losses,which of the following statements is true?

• A)The basis of a shareholder's interest in an S corporation,for purposes of limiting deductibility of losses,is computed in the same manner as a partner's basis in a partnership interest.
• B)A shareholder is permitted to deduct losses against basis in any debt obligation from the S corporation to the shareholder.
• C)If a shareholder's tax basis in a debt obligation is reduced,any gain resulting from the repayment of that obligation is considered ordinary income.
• D)All of the above statements are false.

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Definitions:

Sovereignty

The exclusive right of government to exercise political power.

Enforce Laws

The act of compelling compliance with legislation, rules, or regulations through the application of penalties or sanctions.

Ralph Waldo Emerson

An American essayist, lecturer, philosopher, and poet who led the transcendentalist movement of the mid-19th century.

Imprisoned

Confined or detained in prison as a form of punishment or preventive measure.