Question 1

A taxpayer holds a 50% interest in an S Corporation. At the beginning of the year, their stock basis was $10,000. During the year, the S Corp reported: Ordinary Income $5,000; Tax-Exempt Interest $1,000; Cash Distribution to Taxpayer $8,000. What is the taxpayer's stock basis at the end of the year?

Accepted Answer

1) Calculate share of income items (50%). 2) Add to basis (including tax-exempt). 3) Subtract distribution.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Forgetting to apply the ownership percentage to the corporate income figures, or ignoring tax-exempt interest.

A taxpayer holds a 50% interest in an S Corporation. At the beginning of the year, their stock basis was $10,000. During the year, the S Corp reported: Ordinary Income $5,000; Tax-Exempt Interest $1,000; Cash Distribution to Taxpayer $8,000. What is the taxpayer's stock basis at the end of the year?

How to approach this question

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