Tag Archive for S Corporation Distributions

S Corporations And Partnerships – The Importance of Basis

Basis is very important when determining gain or loss for certain transactions. It is also one of the limiting factors in determining how much loss can be deducted by partnership and S Corp shareholders.

What is basis?

For tax purposes, basis is the amount invested in a property adjusted for certain items.

Basis is usually equal to the cost, or the amount paid in cash, debt obligations, other property or services.

Basis in property is increased by capital items such as capital improvement and assessments for local improvement. Items that constitute a return of capital (e.g. Read More

Written by | Posted in Corporate • Income Tax • Partnership • Small Business

General Rules For S-Corp. Distributions – A Random Walk Down IRC 1368

TaxConnections Blogger postUnless you elect different treatment, for shareholder income tax purposes S corporation distributions are applied in the following order:

1. To reduce the Accumulated Adjustment Account (AAA) determined without regard to any net negative adjustment for the tax year but not below zero.

According to IRC 1368 if distributions during the tax year exceed the AAA at the close of the tax year determined without regard to any net negative adjustment for the tax year the AAA is allocated pro rata to each distribution made during the tax year.

2. If applicable – as in pre 1983 – to reduce shareholders’ Previously Taxed Income (PTI) account for any IRC section 1375(d) distributions associated with tax imposed when passive investment income of the corporation has accumulated earnings and profits in excess of 25% of the gross receipts.

A distribution from the PTI account is tax free to the extent of a shareholder’s basis in his or her stock in the corporation. This is rarely seen any more as there are few S Corps with pre 1983 PTI remaining. Read More

Written by | Posted in Corporate • IRS