S Corporation Losses
Response to the following problem:
Melbourne Corporation is an S corporation with ten shareholders. Chris owns 100 shares of stock, which represents a 15% interest in the corporation. His basis for those 100 shares is $12,000. He also has loaned the corporation $4,000 to support the purchase of a special machine. For the year 2014, the corporation reports an operating loss of $120,000. In addition, the corporation made charitable contributions for the year of $10,000.
a. Explain how Chris reports his share of the S corporation's operating loss and charitable contributions.
b. What is Chris's basis in his S corporation stock at the end of 2014?
c. Compute the amount for each type of carryover to 2015. Discuss what must happen in order for Chris to be able to deduct these amounts in 2015.