Nonliquidating distribution

30-Jan-2020 21:53

If the corporation distributes appreciated property, the corporation is taxed on the gain under Code § 311(b).

If the current E&P equals or exceeds the amount of the distribution, it is a fully taxable dividend to the shareholder even if the corporation has negative accumulated E&P (Regs. Amounts treated as taxable dividends reduce the corporation's E&P balance, but not below zero.Because the tax consequences of distributions depend on the shareholder’s basis, it is important to keep up with changes in the shareholder’s basis over time.A shareholder’s basis in his S corporation stock is increased by the share of the S corporation income that is passed through to the shareholder.Proceeds from cash liquidation distributions are reported on Form 1099-DIV.However, only the amount of distribution that is in excess of the recipient's original investment is taxable.

If the current E&P equals or exceeds the amount of the distribution, it is a fully taxable dividend to the shareholder even if the corporation has negative accumulated E&P (Regs. Amounts treated as taxable dividends reduce the corporation's E&P balance, but not below zero.Because the tax consequences of distributions depend on the shareholder’s basis, it is important to keep up with changes in the shareholder’s basis over time.A shareholder’s basis in his S corporation stock is increased by the share of the S corporation income that is passed through to the shareholder.Proceeds from cash liquidation distributions are reported on Form 1099-DIV.However, only the amount of distribution that is in excess of the recipient's original investment is taxable. On the other hand, individual shareholders often prefer that the distribution be treated as a redemption, for three reasons: A distribution qualifies as a stock redemption only if it significantly reduces the interest of the shareholder in the corporation.