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Federal Income Tax Update, Part II

By Keith A. Wood

This is the second of two installments of this article. Read the first installment on the Tax Section blog here.

I. No Tax Basis Increase for Loan Guaranties Even After the S Corporation Loan Is Called in Full.

 An S corporation shareholder may deduct his/her pro rata share of any losses sustained by the corporation, but those loss deductions are limited to the sum of (a) the shareholder’s adjusted tax basis in the stock, and (b) any corporate indebtedness actually owed to the shareholder.  IRC § 1366(d)(1).

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