square6 In these cases the corporation creates the following four accounts

Square6 in these cases the corporation creates the

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square6 In these cases, the corporation creates the following four accounts: rhombus6 Accumulated Adjustment Account (AAA) : essentially undistributed taxable income since the S corp election was made. rhombus6 E&P account : undistributed E&P from C corp years. rhombus6 Other Adjustment Account (OAA) : undistributed tax-exempt income since the S corp election was made (e.g., tax-exempt interest, nontaxable life insurance proceeds and premiums on life insurance) . rhombus6 Previously Taxed Income Account (PTI) : any other form of undistributed income previously taxed to the shareholders. N.B.: A corporation which was never a C corporation (i.e. elected S corp status immediately) will never have E&P and will never need a AAA.
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S Corporation - Distributions square6 Distributions from an S corporation are taxed to the individual shareholders as follows: rhombus6 Tax-free to the extent of the AAA balance pentastar2 Shareholders already paid tax on this income rhombus6 Dividend income to the extent of E&P (from prior C corp years) pentastar2 The corporation paid tax on this income when it was a C corp. This income is now dividends to the shareholders. rhombus6 Tax-free to the extent of the OAA balance pentastar2 This is tax-exempt income (e.g. interest on municipal bonds) rhombus6 Tax-free to the extent of the PTI balance pentastar2 Only applies to pre 1983 S Corps rhombus6 The excess is considered a return of capital to the extent of the shareholder’s basis in the stock rhombus6 The excess is then considered capital gains
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S Corporation Distributions—Effect on Shareholder Taxed as an ordinary dividend; does not reduce stock basis To extent of C corporation E&P Tax-free; reduces AAA and stock basis To extent of accumulated adjustments account (AAA) Tax Result Shareholder Distribution S Corporation With C Corporation E&P Taxed as a capital gain In excess of stock basis Tax-free; reduces stock basis. To extent of any remaining stock basis Tax-free; reduces OAA and stock basis To extent of other adjustments account (OAA) To extent of previously taxed income (PTI) Tax-free; reduces PTI and stock basis
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Tax-free; reduces stock basis To extent of stock basis Tax Result Shareholder Distribution S Corporation Without C Corporation E&P S Corporation Distributions—Effect on Shareholder Taxed as a capital gain In excess of stock basis Chapter 16, Exhibit 16a
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S Corporation Distributions Does an S corporation recognize gain or loss on the distribution of cash to shareholders? No, never. Does an S corporation recognize gain or loss on the distribution of other property (other than its own stock)? square6 Gains: Yes (compute gain in the same way as if the property were sold) square6 Losses: No (except in complete liquidation). Chapter 16, Exhibit 15a
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FACTS: An S corporation reports the following balances for its sole shareholder as of 1/1/2011: square6 PTI: $15,000 square6 Shareholder Stock basis: $105,000 square6 AAA account balance: $80,000 S Corporation Distributions—Example square6 E&P account balance: $10,000 Assume the corporation makes a distribution of $200,000. What are the tax consequences to the shareholder?
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  • Fall '14
  • fabioambrosio
  • Accounting, Corporation, Limited Liability Company, C CORPORATION

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