On January 1, 2019, Leo paid $15,000 for 5 percent of the stock in BLS, an S corporation. In November, he loaned $8,000 to BLS in return for a promissory note. BLS generated a $600,000 operating loss in 2019. BLS generated $408,000 ordinary business income in 2020.

1. Required:How much of Leo's share of this income is included in his 2020 taxable income?
2. Compute Leo's basis in his BLS stock and his BLS note at the end of 2020.
3. How would your answers to parts a and b change if BLS's ordinary business income was only $220,000?