IRC Section 1367(a)(2)(B) allows S Corporation pass-through losses to reduce the S Corporation basis if allowed or allowable, regardless of the S Corporation shareholders claiming the losses on their income tax return. However, the excess losses and deductions are limited to the S Corporation shareholder's adjusted basis in stock plus any adjusted basis in any corporate indebtedness to the shareholder.

• Tax planning is an essential part of CPA firms and valuable services to clients.

• Suggest a plan for a client to maximize the deductible pass-through losses and deductions over the initial investment from a new wholly-owned S Corporation.