DISTRIBUTIONS2

Previously C Corporation - Now S corporation

EX,

Accumulated E & P as a C corporation $75000

Distributions ti shareholders $500000

Accumulated adjustments account(AAA) $300000
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1. Distribution is tax-free to the extent of S corporation's AAA($300000),but

reduces shareholders' basis.

2.Next $75000 distributed is a fully taxable as dividend income with no affect on

shareholder's baasis.

3.Last $125000 distributef is tax-free but if in excess of shareholder's basis,then

capital gain.

S-corp:Non corp tax,but Distribution should be pay to IRS.

DISTRIBUTIONS

DISTRIBUTIONS - charity and dividends

Always S corp (never a C Corporation)

1.Distribution is taxfree to extent of shareholder's basis.

If stock is $1000000 and soled money is $6000000 then basis of stock is $4000000.

2.Distributions in excess of basis are capital gains.

If stock is $1000000 and sold money is $120000 then basis of stock is $20000.

AAA(Accumulated Adjustments Account): Cumulative amount of income of

income while an S corporation minus distributions.

AAA means R.E of s-corp.

ALLOCATION & BASIS

Ex. A,B,C, and D each own an equal share of an S corporation, D sells

his 25 % interest to E on February 1.

If basis is $100000

A: 1/4 * $100000 $25000

B:1/4 * $100000 $25000

C:1/4 * $100000 $25000

D:1/4 * $100000 * 31/365 $2123

E:1/4 * $100000 * 334/365 $22877
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S corporation's taxable income $100000

Shareholder's Basis in Stock

Shareholders investment (cash & property)

+All income items form K-1

(Losses and deductions on K-1)

(Distributions to shareholders)
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Basis of stock