Rcc liquidating corp 2016
The remaining ,000 is treated as sale of the shareholder’s stock as a capital gain to the shareholder.
Consider the same example; however the corporation also has ,000 of C Corporation E&P.
This account is a tally of the S corporation’s previously taxed, but undistributed income.
If an S corporation with C corporation E&P makes a distribution in excess of AAA, the excess is treated as a taxable dividend to the extent of C corporation E&P.
Distributions in excess of accumulated E&P are treated as a nontaxable return of capital to the extent of the shareholder’s stock basis.
Distributions beyond that are treated as a sale of the shareholder’s stock, generally taxed as a long-term capital gain, depending on the holding period.
S corporation shareholders are taxed on income whether or not the earnings are distributed.
This system of double taxation is precisely the reason why many people choose S corporation status, as S Corporations pay no tax on their own at the corporate level.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.