Should AAA equal basis?
The larger the AAA balance, the more likely a distribution will not be taxed as a dividend. Similarly, AAA is decreased for the same items that decrease basis, except for non-deductible expenses related to tax-exempt income. Unlike stock basis, AAA may be reduced below zero, but only by losses, not by a distribution.
Do distributions from E&P reduce basis?
To the extent the distribution exceeds accumulated E&P, it is treated as if made by an S corporation with no accumulated E&P. In other words, the distribution reduces basis, and to the extent the distribution exceeds basis, produces gain.
Does OAA increase basis?
The OAA reconciles those items that increase or decrease a shareholder’s stock basis but not AAA, primarily tax-exempt income and deductions attributable to tax-exempt income.
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What is the difference between AAA and stock basis?
AAA is irrelevant in determining the taxability of distributions. Stock basis determines the taxability of distributions. Distributions are 1) Tax free to the extent of stock basis and 2) Capital gain to the extent they exceed stock basis.
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What happens when a distribution exceeds both AAA and E & P?
When a distribution exceeds both AAA and E&P, the remaining distribution is treated as having been made from an S corporation with no E&P. Thus, AAA once again becomes irrelevant in determining the taxability of any future distributions.
Can a corporate level account be a negative AAA?
AAA can be negative due to losses/ deductions (but not due to distributions) Corporate level account—no s/h “entitled” to AAA OAA—Other Adjustments Account S Corp. Distributions Example 5: Net Income S Corp. Sole Shareholder AAA AE&P Basis Income Jan. 1 $10,000 $15,000 $12,000 $ 0 Net income-1st 6,000 6]
When do I need to do a AAA computation?
– AAA computation will be necessary if S corp reorganizes tax-free with another corp that has E&P – AAA is also important if the corporation revokes the S election and distributions are made within the post-termination transition period Tax-free distributions during the PTTP are limited to AAA and shareholder basis
When does undistributed S corporation net income become AAA?
Definition of AAA (Reg. 1.1368-2): Quick definition: Undistributed S net income. Starts at $0 on first day of first S year. AAA can be negative due to losses/ deductions (but not due to distributions) Corporate level account—no s/h “entitled” to AAA. OAA—Other Adjustments Account
