Gordon is the sole shareholder of Whitman Corporation, an S corporation. At the beginning of the year, Gordon's basis in his Whitman stock is $100,000. During the year, Whitman Corporation has an operating income of $50,000, dividends from domestic corporations of $15,000, tax-exempt interest of $5,000, nontaxable life insurance proceeds of $10,000 on the death of a key employee, and a capital loss of $15,000. Whitman pays no dividends. What is Gordon's year-end basis in Whitman stock (after the distribution)?
What will be an ideal response?
It is $165,000. Basis in a conduit entity is increased by any income items (whether taxable or not) and decreased by any expenses or losses (whether deductible or not).
| Beginning basis | $100,000 |
| Add: Items increasing basis | |
| Operating income | 50,000 |
| Dividends | 15,000 |
| Tax-exempt interest | 5,000 |
| Life insurance benefits | 10,000 |
| Deduct: Items decreasing basis | |
| Capital loss | (15,000) |
| Ending basis | $165,000 |
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