During the year, Miles Nutt, the sole shareholder of a calendar year S corporation, received a distribution of $16,000. At the end of last year, his stock basis was $4,000. The corporation earned $11,000 ordinary income during the year. It has no accumulated E & P. Which statement is correct?
A) Nutt recognizes a $1,000 LTCG.
B) Nutt's stock basis is $2,000.
C) Nutt's ordinary income is $15,000.
D) Nutt's tax-free return of capital is $11,000.

Question

Quizplus · Accepted Answer

Nutt's stock basis increases by the $11,000 of ordinary income, making it $15,000. The $16,000 distribution exceeds this basis by $1,000, resulting in a $1,000 long-term capital gain.

During the Year, Miles Nutt, the Sole Shareholder of a Calendar