Question

Which of the following statements regarding a shareholder's basis in an S corporation is CORRECT?

A)
The basis is increased if the shareholder guarantees a loan for the S corporation.
B)
Basis points are retroactively taxed on the corporation’s P&L statement.
C)
The basis is increased by net income and distributions that flow through to the shareholder.
D)
The basis is increased if the shareholder actually loans funds directly to the S corporation.

Answer 1

The answer is c I had this before

Answer 2

The correct statement regarding a shareholder's basis in an S corporation is that the basis is increased by net income and distributions that flow through to the shareholder.

Step-by-step explanation:

The correct statement regarding a shareholder's basis in an S corporation is option C - The basis is increased by net income and distributions that flow through to the shareholder.

When a shareholder is allocated net income or receives distributions from the S corporation, it increases their basis in the company. This basis is important because it determines the amount of tax-free distributions a shareholder may receive from the corporation and the amount of losses they may deduct.

Options A and D are not correct because guaranteeing a loan or making a direct loan to the S corporation does not automatically increase a shareholder's basis. Option B is also not correct as basis points are not retroactively taxed on the corporation's P&L statement.