Discussion:Distributions from APIC

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Lark (talk|edits) said:

11 May 2006

Recently had an audit of C Corporation that resulted in the reclass of distribution from APIC to self employment income.

Only reason given for reclass was the historical treatment of similar distributions by prior tax preparers.

This adjustment was large.

Any arguments, reg references would be appreciated.

WillyB (talk\|edits) said:	11 May 2006
Whats APIC?

TaxArt (talk\|edits) said:	11 May 2006
My guess is Additional Paid In Capital = APIC

Lark (talk\|edits) said:	11 May 2006
APIC is additional paid-in capital. It is usually cash invested in the corporation by the shareholder(s). Most times it is set up as a loan payable to the shareholder. Thanks for your response.

Jdugancpa (talk|edits) said:

11 May 2006

Thanks for clarifying APIC. We don't all use the same acronyms and what may be obvious to you sometimes is a stumper to those reading the post. I think you need to provide more information here. Normally a corporation does not distribute amounts from paid in capital unless there is a corporate redemption of some sort. Distributions from corporate equity are generally paid from retained earnings and are considered dividends paid from a C corp. When the amounts were paid out, what was the balance of AE&P (Accumulated earnings & profits for any unfamiliar with that acronym)?

Dennis (talk\|edits) said:	11 May 2006
Consider the following: No wages paid for services. No E&P for dividends. Distribution to sole shareholder is not classified as a loan. Can't be a redemption. I vote for SE income (or wages). ♫

Lark (talk|edits) said:

11 May 2006

Dennis-

There are some wages for services. (brought on through other audit adjustments) These wages are similar to prior year. No Earnings & Profit for Dividends, correct. Not a redemption.

Why not a repayment of a loan? The extra funds were classified as Additional Paid-in Capital by the prior tax preparers, but could(should)have been Loans from shareholder.

I know I am digging, but need some argument.

Taxref (talk|edits) said:

11 May 2006

You will probably have a hard time winning your case unless there are some documents to back up your contention that it was a loan, or a repayment of capital, or whatever. Without loan papers, corporate resolutions, etc. the IRS is able to pretty much reclassify such transactions to their advantage. It shows the importance of running small corps just like they were public companies. And yes, I confess I had no idea what APIC was either!