Rcc liquidating corp 2016
The remaining ,000 is treated as first a tax-free return of the shareholder’s initial stock investment of ,000, and the remaining ,000 represents payment for the sale of the shareholder’s stock, normally treated as capital gain.
To summarize, the existence of C Corporation E&P simply means that distributions from the corporation in excess of undistributed previously taxed income (AAA) will be considered an ordinary dividend to the extent of C Corporation E&P.
The shareholder’s stock basis is ,000 consisting of an initial capital investment of ,000 plus ,000 of undistributed S corporation income (AAA) on which the shareholder has paid already paid tax.
Assume the corporation makes a distribution of ,000.
The first ,000 of the distribution represents distributing previously taxed earnings of ,000, same as above.
The next ,000 of the distribution would be considered a taxable dividend to the shareholder (this is the amount of C Corporation E&P).
An S corporation with C Corporation E&P is required to maintain an account called the accumulated adjustments account (AAA).If the corporation has no C corporation E&P, the first ,000 of the distribution is tax-free.The corporation is simply distributing previously taxed earnings of ,000 and then returning the shareholder’s initial investment of ,000.When a C corporation makes a non-liquidating distribution of money or property to its stockholders, the question is what does the distribution really represent?A distribution of corporate earnings (dividends), a return of the shareholder’s stock investment, or a distribution in excess of their investment?