(15 points) War Eagle Corp, a calendar year corporation, was formed three years ago by its sole shareholder, Jack, who has operated as an S corporation since its inception. Last year, Jack made a direct loan to the company in the amount of $4,000. War Eagle Corp has paid interest on the loan but has not yet paid any principal (Assume the loan qualifies as debt for tax purposes). In year 4, War Eagle Corp experiences a $25,000 ordinary business loss and earns $1,000 of tax-exempt income. At the beginning of year 4, James's basis in his stock was $8,000 and his basis in his corporate debt was $4,000.