EA Exam Part 2 / Businesses
S Corporation Basis Increases Practice Question
Work the complete fact pattern before revealing the explanation. This question is adapted from the IRS public sample set for the current exam law period.
An S corporation stockholder's basis is generally increased by which item?
- A
Distributions
- B
Taxable income
Correct answer - C
Separately stated loss items
- D
Nontaxable discharge of indebtedness
Taxable income
A shareholder's basis generally increases for the shareholder's pro rata share of taxable income and certain other income items.
Reference testedIRC 108(d)(7), 1366 and 1367(a); Treasury Regulation 1.1366-1
Transfer the reasoning, not the wording.
Restate the tested rule without the answer choices. Then change one decisive fact and explain which option would need to change. That short exercise makes the explanation retrievable instead of merely familiar.
Official sample source
PassFast adapted this public IRS sample for web practice and added the concise explanation above.
