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Determining Tax Treatment of S Corporation Distributions: Applying Section 1368 for Optimal Tax Results

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, July 20, 2016

Recorded event now available

This course will provide tax advisers and compliance professionals with a comprehensive and practical guide of the rules for determining the taxability of an S corporation’s distributions to its recipient shareholders. The panel will discuss the intent of IRC Section 1368, detail the shareholder- and corporate-level attributes that determine whether a distribution will be taxable to the recipient, and offer useful guidance in mastering the rules for determining the tax consequences of distributions made from an S corporation both without, and with, accumulated earnings and profits.

Description

Critical to S corporation tax planning and reporting is the treatment of distributions made by the S corp to its shareholders. The rules for tax treatment of distributions from an S corporation are found in IRC Section 1368 and its accompanying regulations. Failure to follow the distribution rules can lead to serious tax consequences, up to the loss of the S election for the corporation.

Whether a distribution from an S corporation is taxable is dependent upon shareholder-level attributes, specifically the distributee’s basis and accumulated adjustment account balance. Additionally, if an S corporation has accumulated earnings and profits—either because the entity was a C corporation prior to an S election, or the S corporation acquired the stock of an existing C corporation that has its own earnings and profits. The existence of accumulated E&P also creates an additional consideration in determining whether an S corp distribution is taxable.

Advisers with appropriate knowledge of the S corporation distribution rules and ordering requirements will not only be able to report distributions accurately, but also to provide proactive distribution planning for S corporation clients.

Listen as our experienced panel provides a thorough and practical guide to the S corporation distribution rules.

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Outline

  1. S corporation distribution rules of IRC 1368
  2. Interrelationship of basis, accumulated E&P, and accumulated adjustments account (AAA)
  3. Key shareholder attributes in determining character and taxability of distributions
  4. Distributions made from S corp without accumulated E&P
  5. Distributions made from S corp with accumulated E&P
  6. Planning opportunities

Benefits

The panel will discuss these and other important issues:

  • What are the Section 1368 rules covering distributions from S corporations to shareholders
  • Ordering rules for adjustments to AAA and stock basis needed prior to determining taxability of distributions
  • What is the treatment of distributions by S corporations which have accumulated E&P due to prior C corporation entity status (or through acquisition)
  • Distributions of real or tangible property (as opposed to cash)

Faculty

Nitti, Anthony
Anthony J. Nitti
Tax Partner
WithumSmith+Brown

Mr. Nitti's practice emphasizes corporate and partnership tax planning, with a special focus on the consolidated...  |  Read More

Craig Kish, CPA
Craig Kish, CPA
Tax Supervisor
WithumSmith+Brown

Mr. Kish works mostly with closely-held, middle-market pass-through entities.  Industries of focus include...  |  Read More