Shawn Bernoulli formed Bernoulli Air Corporation on January 3and immediately made the S election effective for year one. Shawncontributed $50,000 in cash in exchange for 100% of Bernoulli Air’sstock. The corporation also obtained a bank loan for $75,000 tohelp finance operations. As is common with new businesses,Bernoulli Air had an ordinary loss of $60,000 in year 1 and $12,000ordinary loss for year 2. Additionally in year two, Shawn and hiswife Jana divorced and as part of the divorce settlement on March31 of Year 2, Shawn gave Jana 50% of the Bernoulli Air stock. Inthe third year, business operations did much better. Thecorporation had earnings of $40,000 ordinary income. Using thefollowing partial list of research sources, help Shawn determinethe tax consequences of these events, in particular, the usage ofthe S corporation losses.
IRC Sec. 1366
Reg. Sec. 1.1366-2
This question is from an MBA class called FEDERAL TAXES – whichis related to accounting. There is no choice when posting aquestion for Federal Taxes.
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