Following up on your last 2 questions:
- No. This loss is related to the liquidation of the S corporation and the stock of the shareholder which is a capital asset. This is no different than if the shareholder contributed sufficient $$ to the S corporation, paid off the debt at the S corporation level and then liquidated. At that point you would have zero cash distributed, an increase in capital account (basis) equal to the $ contributed to pay the debt and then a capital loss on liquidation.
- Not sure I understand this question. But to clarify, you will generate a LT capital loss for any principal repaid as a result of the shareholder guarantee, as the debt is repaid. That's it. Nothing more.
- In summary, the S corp has liquidated, the shareholder will generate a LT capital loss as they pay off the principal of the debt that was guaranteed and the suspended losses are lost as a result of no basis.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
