This year, Jiang, the sole shareholder of a calendar year S corporation, received a distribution of $17,000. On December 31 of the prior year, his stock basis was $3,000. The corporation earned $12,000 ordinary income during the year. It has no accumulated E&P. Which statement is correct? Ignore the 20% QBI deduction.
A) Jiang recognizes a $2,000 LTCG.
B) Jiang's stock basis will be $2,000.
C) Jiang's ordinary income is $15,000.
D) Jiang's return of capital is $11,000.

Question

Quizplus · Accepted Answer

Jiang's stock basis at the beginning of the year was $3,000. The corporation earned $12,000 during the year, increasing his basis to $15,000. The distribution of $17,000 exceeds his basis by $2,000, which is recognized as a long-term capital gain (LTCG).

This Year, Jiang, the Sole Shareholder of a Calendar Year