What does stock basis mean on the CPA exam?
Stock basis. A shareholder's investment in S corporation stock for tax purposes. It rises with income and contributions, falls with losses and distributions, and cannot go below zero.
Defined against Sec. 1367.
Which CPA exam sections use stock basis?
Stock basis appears in the TCP section of the CPA exam.
What is the difference between stock basis and debt basis?
An S corporation shareholder deducts losses against stock basis first, then against the basis of debt the corporation owes them DIRECTLY. A guarantee creates no debt basis until the shareholder actually pays, which is the sharpest break from partnership law under Sec. 752(a). Debt basis is restored before stock basis, so repaying a loan whose basis is still depressed produces income. (IRC Sec. 1366 and 1367)
Related terms
- debt basis: An S corporation shareholder's basis in loans they personally made to the corporation.
- S corporation: A corporation that elects to be taxed like a partnership, so profit is taxed once in the shareholders' hands.
- adjusted basis: What the taxpayer has invested in property for tax purposes: cost, plus improvements, less depreciation taken.
- contractual basis: A special-purpose framework built from the terms of a contract, used when two parties agree how the numbers will be prepared for their own purposes.
- tax basis: What an asset or liability is worth for tax purposes, which is often not what it is worth for accounting.
- basis of accounting: The rule for WHEN something is recorded: cash when money moves, accrual when it is earned or incurred, modified accrual somewhere between.