In what scenario can a corporation’s shareholders generally NOT deduct losses?

In the context of corporate taxation, shareholders generally cannot deduct losses when they are individual taxpayers due to the way the taxation system is designed. Individual shareholders typically do not have the ability to directly deduct losses incurred by a corporation on their personal tax returns. Instead, losses at the corporate level impact the corporation's tax liability rather than the individual shareholder's tax situation.

When a corporation incurs a loss, it may carry over that loss to offset future taxes or spread it over past profits, benefiting the corporation itself. However, individual shareholders are limited to deducting losses from activities in which they directly participate, such as losses from personal investments or business ventures they operate independently.

In contrast, when filing corporate tax returns, a corporation itself can deduct its losses, and shareholders can transfer shares without recognizing losses for tax purposes. Likewise, while shareholders may be engaged in claiming business expenses from their own operations, these expenses are not linked to the losses of the corporation they hold shares in. Therefore, the correct answer about the deduction of losses relates specifically to the scenario of shareholders as individual taxpayers.