Discussion:S-Corp Distributions in Excess of AAA and Retained Earnings

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Discussion Forum Index --> Tax Questions --> S-Corp Distributions in Excess of AAA and Retained Earnings


Dsmucker (talk|edits) said:

18 June 2007
Client has made distributions in excess of AAA and retained earnings. Client is an S-Corp and was not previously a C-Corp. Loan to Shareholder was already created in previous years to "absorb" the excess distributions. I no longer want to use Loan to Shareholder because it is already a significant amount. Excess distributions are created by client continuing to buy equipment on loan and using S179...any advice?

Kevinh5 (talk|edits) said:

18 June 2007
yes, capital gain if in excess of basis. Also, interest income to the S corp on those old shareholder loans he has never paid back.

Sandysea (talk|edits) said:

18 June 2007
You go get em tiger!! Sounds like client is not seeing the picture that he cannot just take money that he is not entitled to.....hehe

Mtmckeecpa (talk|edits) said:

19 June 2007
D,

I doubt this makes sense but given your client's overall tax situation (179 deductions, amount and life of assets purchased, amount of SH loan, imputed interest, etc....) maybe and that is a BIG maybe your client is better off depreciating the equipment versus 179 and taking the distribution out of current earnings?

Plus, even if you take a distribution that might disallow the 179 deduction anyway due to SH basis limitations?

Dsmucker (talk|edits) said:

19 June 2007
Thanks for the response. How you do handle the capital gain in ProSeries?

Sandysea (talk|edits) said:

19 June 2007
Use the K-1 input screen from the K-1 given to the S/H and this should show up on Schedule D of the tax return from the proseries input screens

WesR (talk|edits) said:

19 June 2007
Hi something doesnt make sense how can client take money from the corp, have loan to corp, pay for the equipment, all with the same money borrowed within the corp? Are we missing the big picture here called what is generating all the cash and what is his real basis for taking the deduction for 179? No suspended losses? As usual there is more to this. bye

Blrgcpa (talk|edits) said:

19 June 2007
Did the client take money from the business to purchase equipment for the business? If so there are misclassifications.

Mtmckeecpa (talk|edits) said:

20 June 2007
We don't know the big picture here but my guess is that if Dsm takes current distributions, and distributes some or all of the prior SH loan that the client will have no stock basis remaining to take the 179 due to the pecking order of SH basis reduction items.

Dsmucker (talk|edits) said:

20 June 2007
Thanks for the response. It is correct there is no stock basis remaining...it looks like I'll have to dig a little deeper here.

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