ExpertMedium1 markMultiple Choice
CPA · Question 33 · Area II: Entity Tax Compliance
Shareholder A sells their 50% interest in an S Corporation on June 30, Year 1 (exactly halfway through the year). The S Corporation has a non-separately stated loss of $100,000 for the full Year 1. No election is made to close the books. What is Shareholder A's share of the loss?
Shareholder A sells their 50% interest in an S Corporation on June 30, Year 1 (exactly halfway through the year). The S Corporation has a non-separately stated loss of $100,000 for the full Year 1. No election is made to close the books. What is Shareholder A's share of the loss?
Answer options:
A.
$50,000
B.
$25,000
C.
$0
D.
$100,000
How to approach this question
Pro-rata allocation: Total Loss * Ownership % * (Days Owned / 365).
Full Answer
B.$25,000✓ Correct
IRC §1377(a)(1). Loss is allocated on a per-share, per-day basis. <br/>Shareholder A owned 50% of the stock for 50% of the year (approx). <br/>Allocation = $100,000 * 50% * (181/365 approx) = ~$25,000.
Common mistakes
Allocating based on ownership at year-end only.
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