Michael owns stock in an S corporation. The corporation sustained a net operating loss this year. Michaels pro rata share of the loss is $5,000. Michaels adjusted basis in his S corporation stock is $1,000 without regard to the loss. In addition, Michael has a loan outstanding to the corporation in the amount of $2,000. Without regard to any passive loss limitation or any at risk rule limitation, what amount, if any, is Michael entitled to deduct with respect to the loss under the subchapter S rules

$1,000.

b. $2,000.

c. $3,000.

d. $5,000.

31. Sam, Sue, and Shelley formed a partnership. Sam received a 50 percent interest in the partnership in exchange for land with an adjusted basis to him of $30,000 and a fair market value of $50,000. Sue received a 25 percent interest in the partnership in exchange for $25,000 of cash. Shelley received a 25 percent interest in the partnership in exchange for $25,000 of cash. Three years after the date of contribution, the land contributed by Sam was sold by the partnership to an unrelated third party for $90,000. How much gain was required to be allocated to Sam as a result of the sale by the partnership?

a. $20,000.

b. $30,000.

c. $40,000.

d. $60,000.

32. Bill owns 50% of the outstanding shares of stock of S corporation. Therefore,

a. Bill may revoke the corporations S status.

b. Bill may not revoke the S status of the corporation.

c. Bill may sell all of his shares to a third party thus causing the deemed dissolution of the S corporation and the deemed creation of a successor C corporation.

d. Bill may sell all or any of his shares to Igor, a citizen of Transylvania residing in Stateboro, GA, thus causing the corporation to lose its S status.