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During the year, Miles Nutt, the sole shareholder of a calendar year S corporation, received a distribution of $16,000. Atthe end of last year, his stock basis was $4,000. The corporation earned $11,000 ordinary income during the year. It has noaccumulated E & P. Which statement is correct?


a.Nutt recognizes a $1,000 LTCG.

b. Nutt’s stock basis is $2,000.

c. Nutt’s ordinary income is $15,000.

d. Nutt’s tax-free return of capital is $11,000.

Respuesta :

ayokenny2001

Answer:

a. Nutt recognize a $1,000 LTCG (long term capital gain)

Explanation:

Since;

Distribution is $16,000

Ordinary income earned is $11,000

Stock basis was $4,000

Therefore,

In this year, his stock basis before distribution is = $11,000+$4,000

=$15,000

After reducing it by the amount of distribution, stock basis reduces to $0

LTCG therefore recognized= $16,000-$15,000

=$1,000.

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