Liquidating s corp
The Timing of Basis Adjustments All basis adjustments are deemed to occur on the last day of the corporation's tax year or on the date the shareholder sells his or her stock, if earlier.
Additional cash contributions or the acquisition of corpo- rate stock will increase a shareholder's stock basis.However, if losses occur subsequent to the distribution, and those losses result in a net loss for the taxable year, the distribution (which the shareholder anticipated to be tax- free) could be converted into a taxable distribution. Under the partnership rules, however (unlike the S corporation rules), for any taxable year, a partner's basis is first increased by items of income, then decreased by distributions, and finally is decreased by losses for that year. Giant, Inc., an S Corporation, has only one shareholder, Linda Fath.Linda had a 7,000 stock basis at the beginning of 1992.Since losses flow through on the basis of the percentage of stock ownership, acquisition of additional stock will also increase the shareholder's proportionate amount of losses.In addition, a loan from a shareholder to the corporation gives basis to the lending shareholder.