On January 2,2007,David loans his S corporation $10,000,and by the end of 2007 David's stock basis is zero and the basis in his note has been reduced to $8,000.During 2008,the company's operating income is $10,000.The company also makes distributions to David of $11,000.Which statement is correct?

Question

Quizplus · Accepted Answer

The $11,000 distribution reduced the $10,000 income,so there is no "net increase" to be applied to the loan basis.Thus,the $11,000 distribution reduces the new $10,000 stock basis to zero,with a $1,000 LTCG.

On January 2,2007,David Loans His S Corporation $10,000,and by the End