Question

During an S corporation's post termination transition period which of the following statements is true?

A) A shareholder cannot create basis in the stock to allow previously suspended loss to be taken

B) The S corporation can distribute any acciumulated adjustments account balance tax free

C) The S corporation cannot distribute any accumulated adjustments account balance after 90 days

D) The S corporation cannot distribute any earnings and profts as taxable dividends prior to S corporation shareholders

Answer 1

During an S corporation's post termination transition period-

A. False-

Post termination transition period loss limitation allows shareholder to create stock basis by capital contributions, stated items of income, the excess of the deductions for depletion over the basis of the property, during post termination transition period to utilize suspended losses. It is the shareholder's tax basis that determine the taxability of a distribution.

B. True-

The S corporation can distribute any accumulated adjustmemts account balance tax free. The distribution is a tax free reduction of the shareholder's basis in the corporation's stock.

C. False

The Scorporation can distribute any accumulated adjustments account balance after 90 days. The importance of accumulated adjustments account is to determine the taxability of distributions at the shareholder level. It can be distributed to the shareholders free of further tax at the individual level.

D. False.

The S corporation can distribute any earnings and profits as taxable dividends prior to S corporation shareholders.