Anna Owns 20% of Cross Co

Multiple Choice

Anna owns 20% of Cross Co., an electing S corporation. Anna's adjusted basis in the stock is $32,000 at the beginning of the current year. During the current year, Cross pays a $50,000 cash dividend to its shareholders. Cross Co. reports a $200,000 operating loss for the current year. Which of the following statements is/are correct?
I.If Anna is a material participant in Chris Co., she can deduct a $40,000 loss.
II.Anna's maximum loss deduction is limited to $22,000.
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A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements are correct.
D) Neither statement is correct.