On January 2,2007,David loans his S corporation $10,000.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 $8,000.Which statement is correct?

Question

Quizplus · Accepted Answer

The "net increase" of $2,000 ($10,000 - $8,000)is first used to increase loan basis back to $10,000.Stock basis is zero,and there is no long-term capital gain.

On January 2,2007,David Loans His S Corporation $10,000