Question

Which of the following items will decrease Sandy's at-risk basis?

a. Sandy's contribution of $10,000 in exchange for stock in the Danny's Dream S corporation

b. Sandy's $3,000 distribution from the S corporation

c. Her share of the S corporation's ordinary business income of $2,500

d. The FMV of the S corporation stock she was given for services rendered to the S corporation

Answer 1

Sandy's $3,000 distribution from the S corporation will decrease Sandy's at-risk basis.

Correct answer is option b.

Explanation:

Sandy's contribution of $10,000 in exchange for stock in the Danny's Dream S corporation will increase at risk basis.

Her share of the S corporation's ordinary business income of $2,500 will also increase at risk basis.

The FMV of the S corporation stock she was given for services rendered to the S corporation will not result in decrease at risk basis since it is consideration for her services rendered to S corporation.