An electing S corporation has a $30,000 ordinary loss for the non-leap year. On January 1, Beverly and Sonya own equally all of the S corporation stock. On the 146th day of the year, Beverly gives her one-half of the S corporation stock to her daughter Becky. How much of the $30,000 ordinary loss is allocated to Sonya?

Question

Quizplus · Accepted Answer

When there is a transfer of ownership in the middle of the year, the allocation of profit or loss takes place on a pro-rata basis. Here, Beverly transferred her one-half of the S corporation stock on the 146th day of the year, which is the 59.7% point of the year (146/365). Therefore, Sonya owns 50% of the S Corporation for 146/365 days and owns 100% of the S corporation for the remaining 219/365 days. Thus, the allocation of the $30,000 ordinary loss to Sonya is: $30,000 x (50% x 146/365 + 100% x 219/365) = $30,000 x 0.6027 = $18,080, which rounds to $15,000.

An Electing S Corporation Has a $30,000 Ordinary Loss for the Non-Leap