Adjustments to the Basis of the Stock of Shareholders

(a) The basis of the stock of any shareholder in a Pennsylvania S corporation shall be increased for any period by his share of the corporation's income, including nontaxable income, as determined under section 307.9.

(b) The basis of any shareholder's stock in a Pennsylvania S corporation shall be decreased for any period, but not below zero, by any distribution by the corporation to the shareholder which was not included in the income of the shareholder pursuant to section 307.12 and by his share of the corporation's losses as determined under section 307.9 to the extent that the loss reduced the shareholder's income subject to the tax imposed under this article or a tax measured by net income, imposed on the shareholder by any other state.

(c) If for any taxable year any shareholder's basis in the stock of a Pennsylvania S corporation is reduced to zero, any excess losses will reduce the shareholder's basis, but not below zero, in any indebtedness of the Pennsylvania S corporation to the shareholder.