What is the distribution order for an S Corporation when no E&P exists from the C Corporation?
In the event that, prior to converting to an “S status” the corporation did not exist or operate as a C corporation, there would not be any accumulated earnings and profits. Therefore, the distribution order would be as follows:
First distribution – the first distribution would be made from S corporation earnings and profits (AAA) and would be nontaxable to the receiving shareholder.
Second distribution – the second distribution would be a reduction to the shareholders basis in the corporation’s stock and would be treated as a nontaxable return of capital.
Third distribution – any distribution that exceed the shareholders basis would be treated as a capital gain to the receiving shareholder.
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How to calculate liquidating distributions for a shareholder of an S corp?
When a liquidating distribution has been made to the shareholder from an S corporation, such distributions will be treated as payments in exchange for the shareholders’ stock in the corporation (same rules as C corporation). The overall value will either be based on the cash received (option #1) or the fair market value of the […]
How to calculate shareholder basis in an S Corp?
Unlike the formation of a C corporation and the formation of partnerships, the calculation of basis for an S corporation will not purely be calculated by the initial contribution made by shareholders to the corporation. The formula that you should be familiar with regarding the basis for an S corporation can be calculated as follows: