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Unformatted text preview: CPA-01952 Type1 M/C 83. CPA-01952 ARE R03 #8 A-D Corr Ans: C PM#3 R 3-02 Page 52 Baker, an individual, owned 100% of Alpha, an S corporation. At the beginning of the year, Baker's basis
in Alpha Corp. was $25,000. Alpha realized ordinary income during the year in the amount of $1,000 and
a long-term capital loss in the amount of $3,000 for this year. Alpha distributed $30,000 in cash to Baker
during the year. What amount of the $30,000 cash distribution is taxable to Baker?
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Becker CPA Review, PassMaster Questions
Lecture: Regulation 3 CPA-01952
Choice "c" is correct. The taxability of distributions to shareholders in S corporations with no C
corporation earnings and profits is as follows:
1. To the extent of basis in stock - tax free; treated as return of capital.
2. Any distributions in excess of the shareholder's basis - taxable; treated as capital gain.
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