11.85) Abigail, Bobby, and Claudia are equal owners in Lafter, an S corporation that was a C corporation several years ago. While Abigail and Bobby actively participate in running the company, Claudia has a separate day job and is a passive owner. Consider the following information for 2015

: As of January 1, 2015, Abigail, Bobby, and Claudia each have a basis in Lafter stock of $15,000 and a debt basis of $0. On January 1, the stock basis is also the at-risk amount for each shareholder.

Bobby and Claudia also are passive owners in Aggressive LLC, which allocated business income of $14,000 to each of them in 2015. Neither has any other source of passive income (besides Lafter, for Claudia).

On March 31, 2015, Abigail lends $5,000 of her own money to Lafter.

Anticipating the need for basis to deduct a loss, on April 4, 2015, Bobby takes out a $10,000 loan to make a $10,000 contribution to Lafter. Bobby uses his automobile ($12,000 fair market value) as collateral.

Lafter has an accumulated adjustments account balance of $45,000 as of January 1, 2015.

Lafter has C corporation earnings and profits of $15,000 as of January 1, 2015

. During 2015, Lafter reports a business loss of $75,000 computed as follows:

Sales revenue $90,000

Cost of goods sold (85,000)

Salary to Abigail (40,000)

Salary to Bobby (40,000)

Business (loss) ($75,000)

Lafter also reported $12,000 of tax-exempt interest income

.a) What amount of Lafters 2015 business loss of $75,000 are Abigail, Bobby, and Claudia allowed to deduct on their individual tax returns? What are each owners stock basis and debt basis (if applicable) and each owners at-risk amount with respect to the investment in Lafter at the end of 2015?

During 2016, Lafter made several changes to its business approach and reported $18,000 of business income, computed as follows:

Sales revenue $208,000

Cost of goods sold (90,000)

Salary to Abigail (45,000)

Salary to Bobby (45,000)

Marketing expense (10,000)

Business income $ 18,000

Lafter also reported a long-term capital gain of $24,000 in 2016.

Lafter made a cash distribution on July 1, 2016, of $20,000 to each shareholder.

b) What amount of gain/income does each shareholder recognize from the cash distribution on July 1, 2016?