Tuna,Inc.,a closely held corporation which is not a PSC,owns a 40% interest in Trout Partnership,which is classified as a passive activity.Trout's taxable loss for the current year is $200,000.During the year,Tuna receives a $60,000 cash distribution from Trout.Other relevant data for Tuna are as follows:

How much of Tuna's share of Trout's loss may it deduct in calculating its taxable income?
A)$0.
B)$25,000.
C)$60,000.
D)$80,000.
E)None of the above.

Question

Tuna,Inc.,a closely held corporation which is not a PSC,owns a 40% interest in Trout Partnership,which is classified as a passive activity.Trout's taxable loss for the current year is $200,000.During the year,Tuna receives a $60,000 cash distribution from Trout.Other relevant data for Tuna are as follows:

How much of Tuna's share of Trout's loss may it deduct in calculating its taxable income?

How much of Tuna's share of Trout's loss may it deduct in calculating its taxable income?
A)$0. 
B)$25,000. 
C)$60,000. 
D)$80,000. 
E)None of the above.

Quizplus · Accepted Answer

Tuna's share of Trout's taxable loss of $200,000 is $80,000 ($200,000 F1F1F1S1F1F1F10 40%).However,since Tuna's investment in Trout is classified as a passive activity and Tuna is a closely held corporation,the passive activity rules apply.The passive activity loss cannot be offset against Tuna's portfolio income of $25,000 ($10,000 + $15,000),but since Tuna is a closely held corporation the passive activity loss can be offset against the active income of $600,000.Thus,Tuna can deduct all of its $80,000 share of Trout's loss.

Tuna,Inc,a Closely Held Corporation Which Is Not a PSC,owns a 40