Question

Juliana was a shareholder in a calendar year S corporation that terminated its S status on May 3. At the time of the termination, Juliana's stock and debt basis were zero, and she had suspended losses of $13,000. Juliana's suspended losses are:

a. Deductible in the year of termination
b. Carried forward indefinitely
c. Lost and cannot be deducted
d. Carried back to the previous year

Answer 1

When an S corporation terminates its S status, any suspended losses of the shareholders are lost and cannot be deducted.

Step-by-step explanation:

When an S corporation terminates its S status, any suspended losses of the shareholders are lost and cannot be deducted. In this case, Juliana's suspended losses of $13,000 cannot be claimed as a deduction in the year of termination, carried forward indefinitely, carried back to the previous year, or deducted at all. Since her stock and debt basis were zero at the time of termination, there is no basis to support the deduction of the suspended losses.