3.26 Ark. Code R. 51-409(c)(1)

Current through Register Vol. 49, No. 10, October, 2024

Rule 3.26-51-409(c)(1) - S Corporation Shareholder Basis

An S corporation shareholder's basis is significant because:

(1) distributions in excess of his basis may result in gain to the shareholder; and

(2) the shareholder can deduct his pro rata share of the corporation's losses only to the extent of his adjusted basis in the S corporation's stock and debt.

The adjusted basis of the shareholder's stock for purposes of computing the limitation on the amount of the S corporation's losses he can deduct (the loss limitation) is computed after the basis is reduced by the year's nontaxable distributions made to the shareholder. IRC Sec. 1366(d).

The adjusted basis of the shareholder's stock for determining the tax effects of the S corporation distributions to him is determined by increasing the basis for his share of the S corporation's income items for the year, but without decreasing the basis for his share of the S corporation's losses for the year. IRC Sec. 1368.

3.26 Ark. Code R. 51-409(c)(1)