LO.4, 5, 6 Spence, Inc., a calendar year S corporation, generates an ordinary loss of $110,000 and

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LO.4, 5, 6 Spence, Inc., a calendar year S corporation, generates an ordinary loss of $110,000 and makes a distribution of $140,000 to its sole shareholder, Storm Nelson. Nelson's stock basis and AAA at the beginning of the year both total $200,000. Write a memo to your senior manager, Aaron McMullin, discussing the tax treatment of Spence's activities.

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