As of January 1, 2020, Amanda, the sole shareholder of Tern (a calendar year S corporation), had a basis of $50,000 in her stock.During 2020, Tern had a net operating loss of $100,000 and distributed a $70,000 dividend to Amanda.What is Amanda's basis in her Tern stock as of January 1, 2021?

Question

Quizplus · Accepted Answer

Amanda's basis in her Tern stock would be reduced first by the net operating loss of $100,000, which would reduce her basis to $0, since a shareholder's basis in S corporation stock cannot go below zero. The $70,000 dividend distribution does not further reduce her basis but is taken into account for tax purposes differently. Therefore, her basis as of January 1, 2021, would be $0.

As of January 1, 2020, Amanda, the Sole Shareholder of Tern