Orange, Inc., a calendar year corporation in Clemson, South Carolina, elects S c
ID: 2483372 • Letter: O
Question
Orange, Inc., a calendar year corporation in Clemson, South Carolina, elects S corporation status for 2015. The company generated a $74,000 NOL in 2014 and another NOL of $43,000 in 2015. Orange recorded no other transactions for the year. At all times in 2014 and 2015, the stock of the corporation is owned by the same four shareholders, each owning 25% of the stock. Pete, one of the shareholders, holds a $6,020 basis in the Orange stock at the beginning of 2015.
The deductible loss by Pete is ? , with a ? carryover.
Explanation / Answer
Answer: Pete = 25% shareholder
Own = 25% Share
2014
NOL $74,000
=74,000 * 25%
=$18,500
2015
NOL $43,000
=43000 * 25%
= $10,750
Limited to Tax Basis $6,020
2015 Excess NOL carried forward = $10750 - $6,020=$4730
The deductible loss by Pete is $6020, with a $4730 carryover.The remaining $4,730 is suspended until Pete creates an additional basis to absorb this loss. Pete can increase his basis by either making an additional investment in the company (stock basis) or loan the company money (debt basis). Alternatively, he can wait for the company to make enough profit, to enable him to deduct his suspended loss.
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