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3: Jeff, a 52% owner of an S corporation, has a stock basis of zero at the beginning of the year. Jeff's basis in a $10,000 loan made to the corporation and evidenced by a corporate note has been reduced to zero by pass-through losses. During the year, his net share of the corporate taxable income is $11,000. At the end of the year, Jeff receives a $15,000 cash distribution. Discuss the tax effects of the distribution.

Beginning Basis	0
Add Taxable Corporate Income	11,000
Basis for Distribution	11,000
Less Distributions ($11,000 or $15,000 whichever is less)	11,000
Ending Stock Basis	0

A non dividend disruption in excess of the stock basis is to be treated and reported as capital gain on the person's personal return of the shareholder. So here there is a $11,000 of cash distributions will have no related tax effects. The remaining balance though if $4,000 (15,000-11,000) will have to be reported as capital gain and taxed accordingly.

4:

a. Assume the same facts as in Problem 3 above, except that there is no cash distribution, but the corporation repays the loan principal to Jeff. Discuss the tax effects.

b. Assume the same facts as in Problem 3 except that Jeff's share of corporate taxable income is only $8,000 and there is no cash distribution. However, the corporation repays the $10,000 loan principal to Jeff. Discuss the tax effects. Assume that there was no corporate note (i.e., only an account payable). Does this change your answer? Explain.

I'm looking for help with sections a. and b. of question 4, but provided the information from question 3 above as it is needed.

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