Question

Identify which of the following statements is false.

A. Debt basis is restored before stock basis.
B. Randy is a shareholder in an S corporation. His stock basis is​ $10,000 and his basis in a loan he made to the corporation is​ $3,000. Randy's share of the​ corporation's ordinary loss for the current year is​ $11,000. Ignoring the atminus−risk and passive activity​ limitations, Randy can deduct the loss in full.
C. A​ shareholder's ratable share of the S​ corporation's ordinary loss reduces the adjusted basis of​ his/her S corporation stock. Once the basis of the stock is reduced to​ zero, any loss minus−passthrough that remains reduces the basis of S corporation debts that are owed to the shareholder.
D. A​ shareholder's S corporation stock basis will increase when the shareholder acts as guarantor on a corporate indebtedness.

Answer 1

Answer: The correct answer is "D. A​ shareholder's S corporation stock basis will increase when the shareholder acts as guarantor on a corporate indebtedness.".

Explanation: The statement D. A​ shareholder's S corporation stock basis will increase when the shareholder acts as guarantor on a corporate indebtedness. is FALSE because a shareholder's S corporation stock basis does not increase when the shareholder acts as guarantor on a corporate indebtedness.