An S corporation shareholder's stock basis includes his or her direct investments plus a ratable share of any corporate liabilities.

Question

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An S corporation shareholder's stock basis includes his or her direct investments and any separately stated income items, but it does not include a share of corporate liabilities. Corporate liabilities affect a shareholder's basis in an S corporation only in the context of determining the basis of any debt the corporation owes to the shareholder, not the basis of the shareholder's stock.

An S Corporation Shareholder's Stock Basis Includes His or Her