On January 1,Bobby and Alice own equally all of the stock of an electing S corporation called Prairie Dirt Delight.The dirt company has a $60,000 loss for a non-leap year.On the 219th day of the year,Bobby sells his one-half of the stock to his son,Paul.How much of the $60,000 loss,if any,is allocated to Bobby?

Question

Quizplus · Accepted Answer

As of the 219th day of the year, Bobby owned Prairie Dirt Delight for 219/365 or 0.6 of the year. Alice owned the other 0.4 of the year. Therefore, when the $60,000 loss is allocated to the shareholders, Bobby is allocated 0.6 x $60,000 = $36,000 of the loss. However, since Bobby sold his shares to Paul, Bobby can no longer claim his share of the loss. Therefore, Alice gets the entire loss of $60,000, and Bobby's allocation of the loss is $0. Paul's purchase of the shares occurs too late to allocate any of the loss to him for the year. So, the correct answer is B) $18,000.

On January 1,Bobby and Alice Own Equally All of the Stock