On January 1, Bobby and Alice own equally all of the stock of an electing S corporation called Prairie Dirt Delight. The entity incurs a $60,000 loss for a non-leap year. On the 200th day of the year (not a leap year), Bobby sells his one-half of the stock to his son, Saul. How much of the $60,000 loss, if any, is allocated to Bobby?

Question

Quizplus · Accepted Answer

Under the S corporation rules, losses are allocated to shareholders based on their pro rata share of ownership. Bobby owned 50% of the stock for 200 days of the year, and Saul owned the other 50% for the remaining 165 days of the year. Therefore, Bobby is allocated 50% x $60,000 x (200/365) = $16,438 of the loss.

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