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That is correct, assuming he was the original sole owner of the stock and did not aquire through purchase, inheritance or gift. That is correct. Since the C-corp is a separate taxable entity, retained earnings do not change basis and are subject to double taxation. His basis equals his investment; internal transactions do not change it with a C corp.

Just curious how you have now determined it had not been depreciated either in full or part? Also, how are you going to determine if the improvements (either in full or in part) have not been written off as expenses over the years? In order to include the improvements in the 481(a) adjustment, you will need the date placed in service to determine the amount of depreciation allowed or allowable.

Been a while since I've had a C, but I think he has taxable income of 139,678, which is the 202,278 received less basis of 62,600.

If depreciation was never deducted then a Form 3115 needs to be filed correcting the depreciation which would allow the deduction of the combined years of depreciation in the current year. Then the sale of the house could be recorded using the correct accumulated depreciation. "Form 3115, Change in Accounting Method, is used to correct most other depreciation errors, including the omission of depreciation. If you forget to take depreciation on an asset, the IRS treats this as the adoption of an incorrect method of accounting, which may only be corrected by filing Form 3115."