How does the basis calculation of an S corporation sharehold

How does the basis calculation of an S corporation shareholder basis differ from a partner and a partnership? Discuss any recent developments (within the last 36 months) in the calculation of the S corporation shareholder’s basis.

Solution

The major difference in the basis of an S corporation and that of a partner and a partnership is in the case money is borrowed. A partner or partnership is allowed to include the money borrowed in the basis, while an S corporation cannot include the money borrwed into the basis calculation.

For example consider a situation wherein two partners start a business wherein the initial investment was $10,000 each. The company borrowed additional $20,000. For each shareholder in the S corporation the basis would be $10,000 and for each partner in the partnership the basis would be $20,000.