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At the beginning of the year, Lewis, Inc. (an S corporation) had an $8,000 balance in...

At the beginning of the year, Lewis, Inc. (an S corporation) had an $8,000 balance in AAA. During the year, Lewis earned business income of $15,000 and distributed $30,000 to its sole shareholder (Jerry). Jerry's basis in his stock was $12,000 at the beginning of the year. How much of the this distributions will be treated as a capital gain to Jerry?

A. $7,000 B. $0 C. $18,000 D. $3,000

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Answer #1

Opening balance in S Corporation = $ 8,000 ( in AAA i.e, HIgh rated bonds in Stock)

During the Year Income earned = $ 15,000

Jerry's contribution in share holding = $12,000

Distrubution to jerry = $ 30,000

Capital Gain to Jerry = $30,000- ($12,000+ $ 15,000) = $ 3,000

Option C

Note:  Here, If it's given as dividend to him there is no capital gain to jerry . It is related to other source income

So, In this scenario Capital gain must be "zero"

Option B $ 0

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