Cleo and Jenny are wealthy retirees who decide to open an antique furniture store, C&J Antiques, on Main Street. They take out a $100,000 small business loan at the bank to get the business started because they don't want to tap into their savings. Cleo and Jenny use the money to travel to flea markets across the country to buy various antiques to sell in their store. Unfortunately, in their first year of business, they suffer a $50,000 loss as their inventory is too avant garde for the locals. Cleo and Jenny also default on their loan payments. To make matters worse, an antique bird cage falls on a customer, Billy's, head and he brings a negligence lawsuit against the business.

If C&J Antiques is a corporation with Cleo and Jenny the sole and equal shareholders, which of the following best describes how the business's losses will be reported to the IRS?