Barb and Chuck each own one-half the stock of Wren,Inc. ,an S corporation.Each shareholder has a stock basis of $100,000.Wren has no accumulated E & P.Wren's taxable income for the current year is $80,000,and it distributes $50,000 to each shareholder.Barb's stock basis at the end of the year is:
A)$50,000.
B)$90,000.
C)$100,000.
D)$140,000.
E)None of the above.

Question

Quizplus · Accepted Answer

When Wren, Inc. distributes $50,000 to each shareholder, it will result in a reduction in their stock basis. The distribution reduces the shareholder's stock basis by the amount of the distribution. Therefore, after the distribution, Barb's stock basis will be $100,000 - $50,000 = $50,000. Her basis will not be increased by the current year taxable income, which is less than the amount of distribution. Therefore, her stock basis at the end of the year is $50,000.

Barb and Chuck Each Own One-Half the Stock of Wren,Inc