Both Tracy and Cabel own one-half of the stock of Finch, Inc., an S corporation with no accumulated E & P. Tracy's basis in the Finch stock is $225,000. Finch's taxable income for the current year is $100,000, and it distributes $180,000 to each shareholder. Tracy's stock basis at the end of the year is:
A) $-0-.
B) $45,000.
C) $95,000.
D) $100,000.

Question

Quizplus · Accepted Answer

Tracy's initial stock basis is $225,000. She adds her share of the taxable income ($50,000) to her basis, making it $275,000. She then subtracts the distribution she received ($180,000), resulting in a final stock basis of $95,000.

Both Tracy and Cabel Own One-Half of the Stock of Finch