Discussion:10 year rule and basis
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| Revision as of 21:51, 22 October 2009 Kevinh5 (Talk | contribs) ('cold cash' that) ← Previous diff |
Current revision KatieJ (Talk | contribs) (LOL, Kevin. Wha) |
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| {{ForumReplyPost|UserID=Kevinh5|Date=22 October 2009|Text='cold cash' that can't be used?}} | {{ForumReplyPost|UserID=Kevinh5|Date=22 October 2009|Text='cold cash' that can't be used?}} | ||
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| + | {{ForumReplyPost|UserID=KatieJ|Date=22 October 2009|Text=LOL, Kevin. | ||
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| + | What Barbara means (I think <G>) is that an S corporation that was previously a C, and has C corp earnings and profits, has to maintain an Accumulated Adjustments Account (AAA) from which it can make tax-free distributions to its stockholders. Any distribution in excess of AAA comes from C corporation earnings and profits and is taxable to the stockholders as a dividend. And, of course, if AAA and C corp E&P are both exhausted, any further distribution is a capital gain to the stockholders. | ||
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| + | An S corporation that has C corp E&P can elect to have distributions come first from that source, so as to "clean out" the C corp E&P and avoid the tax on excess net passive income or termination of the S election under IRC Sec. 1362(d)(3). }} | ||
Current revision
Discussion Forum Index --> Advanced Tax Questions --> 10 year rule and basis
Discussion Forum Index --> Tax Questions --> 10 year rule and basis
| 22 October 2009 | |
| I have heard much about the 10 year rule for conversion from a C Corp to an S-Corp related to built in gains. Does this also apply to the basis that existed at the end of the C-Corps last year? Is the shareholder precluded from using that basis for 10 years and then can use it in the 11th year to make some of the SCorp losses deductible? The same individual was the lone shareholder in both companies. | |
| 22 October 2009 | |
| No, the BIG tax is strictly a corporate level tax. The recognition period for 2009 and 2010 is only 7 years, instead of 10-years. | |
| 22 October 2009 | |
| The retained earnings from a c corp becomes "frozen" when the c converts to an s corp.
If it eventually converts back to a c corp, then it becomes "unfrozen" and can be used. | |
| 22 October 2009 | |
| LOL, Kevin.
What Barbara means (I think <G>) is that an S corporation that was previously a C, and has C corp earnings and profits, has to maintain an Accumulated Adjustments Account (AAA) from which it can make tax-free distributions to its stockholders. Any distribution in excess of AAA comes from C corporation earnings and profits and is taxable to the stockholders as a dividend. And, of course, if AAA and C corp E&P are both exhausted, any further distribution is a capital gain to the stockholders. An S corporation that has C corp E&P can elect to have distributions come first from that source, so as to "clean out" the C corp E&P and avoid the tax on excess net passive income or termination of the S election under IRC Sec. 1362(d)(3). | |
