Question

a)Distribution of $15,000 cash to a shareholder if the accumulated adjustments account balance is $5,000 and the shareholder’s basis in his or her stock is $15,000. There are no Subchapter C earnings and profits.

What are the Capital Gains and Taxable Dividends

b) Distribution of $15,000 cash to shareholder if the accumulated adjustments account balance is $10,000. The shareholder’s basis in his or her stock is $15,000. The Subchapter C earnings and profits balance is $5,000. No election to apply distributions to earnings and profits first has been made.

What are the Capital Gains and Taxable Dividends

c) Distribution of a computer to a shareholder when its basis to the S Corporation was $15,000 and its fair market value was $10,000. The accumulated adjustments account balance is $10,000, and the shareholder’s basis in his or her stock is $10,000. There are no Subchapter C earnings and profits.

What are the Capital Gains and Taxable Dividends

Answer 1

1. The Answer to this is the Taxable Dividend is $ 10,000 and Capital gain is $ 5000.

Calculations:- Dividend Distributed is $ 15,000. The Liability assumed is $ 5000 and Stock Basis is $ 5000.

A	Dividend	$ 15,000.00
B	Stock Basis	$ 5,000.00
C	Liability Assumed	$ 5,000.00
A-C	Taxable Dividend	$ 10,000.00
A-C-B	Capital Gains	$ 5,000.00

Basis

The taxable dividend is recognised the balance is available in retained earnings of a corporation. The amount of distribution is reduced by the amount of the liabilities assumed by the shareholder as per regulation (Secs. 301(b)(1) and (c).

If the distribution is more than earnings of the corporation, the excess is reduced from the stock basis of the shareholder.

Any excess over and above the stock basis is considered as a capital gain.

answered by: anonymous