Question :
Rondo and his business related, Larry, are considering forming a business entity called R&L but they are unsure about whether to form it as a C corporation, an S company or as an LLC. Rondo and Larry would each invest $81,750 in the business. Therefore, each owner would take an initial basis in his ownership interest of $81,750 no matter which entity kind was formed. Shortly after the creation of the entity, the business borrowed $31,500 from the bank. If appropriate, this debt is shared equally between the two owners.
a. After taking the loan into account, determine Rondo's tax basis in his R&L stock if R&L is formed as a C business?
b. After taking the loan into account, determine Rondo's tax basis in his R&L stock if R&L is formed as an S corporation?
c. After taking the loan into account, evaluate Rondo's tax basis in his R&L ownership interest if R&L is formed as an LLC?