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1 1. If a corporation has been an S corporation since inception, describe how its operating distributions to its shareholders are taxed to the shareholders. 2. [LO 4] How are the tax consequences of a cash distribution different from those of a non- cash property distribution to both the corporation and the shareholders? Answer 3. If a corporation has been an S corporation since inception, describe how its operating distributions to its shareholders are taxed to the shareholders. The distributions are tax-free as long as they do not exceed the shareholder’s stock basis in the corporation. Amounts in excess of the stock basis are taxed as capital gains. 4. [LO 4] How are the tax consequences of a cash distribution different from those of a non- cash property distribution to both the corporation and the shareholders? S corporations do not recognize a gain on cash distributions and the distributions are tax free
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