Final answer:
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.