Rayburn owns all the shares of Newcastle Corporation that operates as an S corporation.Rayburn's basis in the stock is $15,000.During the year he receives a cash distribution of $22,000 from Newcastle.What must Rayburn and Newcastle report as income from the cash distribution?
Rayburn Newcastle
A)$-0- $-0-
B)$7,000 $-0-
C)$-0- $7,000
D)$7,000 $7,000

Question

Quizplus · Accepted Answer

Rayburn must report $7,000 as income because the distribution exceeds his stock basis of $15,000. Newcastle does not report any income from the distribution as it is a pass-through entity.

Rayburn Owns All the Shares of Newcastle Corporation That Operates