Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Birch Corp., a calendar-year corporation, was formed three years ago by its sole shareholder, James, who has operated it as an S corporation since its

Birch Corp., a calendar-year corporation, was formed three years ago by its sole shareholder, James, who has operated it as an S corporation since its inception. Last year, James made a direct loan to Birch Corp. in the amount of $9,100. Birch Corp. has paid the interest on the loan but has not yet paid any principal. (Assume the loan qualifies as debt for tax purposes.) For the year, Birch experienced a $31,900 business loss. What amount of the loss clears the tax-basis limitation, and what is Jamess basis in his Birch Corp. stock and Birch Corp. debt in each of the following alternative scenarios? (Leave no answer blank. Enter zero if applicable.)

  1. At the beginning of the year, James's basis in his Birch Corp. stock was $53,200 and his basis in his Birch Corp. debt was $9,100.

Amount of loss clearing tax basis limitation

Basis in stock

Basis in debt

b. At the beginning of the year, James's basis in his Birch Corp. stock was $8,150 and his basis in his Birch Corp. debt was $9,100.

Amount of loss clearing tax basis limitation

Basis in stock

Basis in debt

c. At the beginning of the year, James's basis in his Birch Corp. stock was $0 and his basis in his Birch Corp. debt was $9,100.

Amount of loss clearing tax basis limitation

Basis in stock

Basis in debt

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Accounting questions