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If losses are suspended due to the lack of basis in S corporation stock, do the...

If losses are suspended due to the lack of basis in S corporation stock, do the losses expire when the S election terminates?

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Answer #1

S Corp enjoys special tax status. Income earned by S Corp are not taxed at S Corp level rather Individual Shareholder's claim that income in their personal returns as per profit sharing ratio.

Any losses incurred by S Corp can be deducted from Basis of S Corp Stock. Any losses in excess of the S Corp Stock's Basis are suspended and carried forward to reduce from any future income.

In case election of S Corp terminates or any shareholder sells his stock, then the losses cannot be suspended or carried forward further i.e., they just expire.

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