Cactus Corporation, an S corporation, had accumulated earnings and profits of $100,000 at the beginning of 2009. Tex and Shirley each own 50% of the stock and have a basis in their stock of $50,000 on January 1, 2009. Cactus does not make any distributions during 2009, but had $200,000 of ordinary income. In 2010, ordinary income was $100,000 and distributions were $100,000. What is Tex's basis at January 1, 2011?

Question

Quizplus · Accepted Answer

Tex's basis increases by his share of the S corporation's income and decreases by distributions. In 2009, his basis increases by $100,000 (50% of $200,000 income), making it $150,000. In 2010, his basis increases by $50,000 (50% of $100,000 income) and decreases by $50,000 (50% of $100,000 distribution), keeping it at $150,000.

Cactus Corporation, an S Corporation, Had Accumulated Earnings and Profits