During the year, Gary, the sole shareholder of a calendar year S corporation, received a distribution of $16,000. At the end of last year, his stock basis was $4,000. The corporation earned $11,000 ordinary income during the year. It has no accumulated E & P. Which statement is correct?a. Gary recognizes a $1,000 LTCG. b. Gary’s stock basis is $2,000.c. Gary’s ordinary income is $15,000.d. Gary’s tax-free return of capital is $11,000.

a. Gary recognizes a $1,000 LTCG

Explanation:

Long Term Capital Gain is calculated by the formula:

= Distribution from company - Basis in stock - Ordinary income earned during the year

= 16,000 - 4,000 - 11,000

= $1,000

First statement is therefore correct that Gary would recognize an LTCG of $1,000.

d, conspicuous consumption is when you try to increase your wealth or social status (and in the case he's trying to create the perception of wealth considering he can't really afford it)

answer; i believe the correct answer is (business necessity defense;