McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick

Exercise 33

Rondo and his business associate, Larry, are considering forming a business entity called R L but they are unsure about whether to form it as a C corporation, an S corporation or as an LLC. Rondo and Larry would each invest $50,000 in the business. Thus, each owner would take an initial basis in their ownership interest of $50,000 no matter which entity type was formed. Shortly after the formation of the entity, the business borrowed from the bank $30,000. If applicable, this debt is shared equally between the two owners.
a. After taking the loan into account, what is Rondo's tax basis in his R L stock if R L is formed as a C corporation
b. After taking the loan into account, what is Rondo's tax basis in his R L stock if R L is formed as an S corporation
c. After taking the loan into account, what is Rondo's tax basis in his R L ownership interest if R L is formed as an LLC