An S corporation makes a $20,000 cash distribution to a shareholder whose basis in the stock is $19,000.The distribution will result in a $1,000 negative basis in the stock.

Question

Quizplus · Accepted Answer

The distribution will not result in a negative basis; instead, it will reduce the shareholder's basis to zero, and the remaining $1,000 will be treated as a capital gain to the shareholder.

An S Corporation Makes a $20,000 Cash Distribution to a Shareholder