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2 September, 11:28

Indigo, Inc., a calendar year S corporation, has no AEP. During the year, Amir, an individual shareholder of the corporation, receives a cash distribution of $18,500 from Indigo. Amir's basis in his stock is $15,000. In this case:

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  1. 2 September, 12:33
    0
    Amir receives $15,000 tax free.

    Refer below.

    Explanation:

    Indigo, Inc., a calendar year S corporation, has no AEP. During the year, Amir, an individual shareholder of the corporation, receives a cash distribution of $18,500 from Indigo. Amir's basis in his stock is $15,000. In this case:

    Amir receives $15,000 tax free.
  2. 2 September, 15:00
    0
    Amir's basis is $0, so he/she is no longer a shareholder, and must pay taxes only for the $3,500 capital gain.

    Explanation:

    Accumulated earnings and profits = $0, so it should not distribute dividends. What probably happened is that Indigo is repurchasing Amir's stocks:

    Amir's gain/loss on the distribution = $18,500 cash - $15,000 basis = $3,500 gain

    So now Amir's basis is $0, so he/she is no longer a shareholder, and must pay taxes only for the $3,500 capital gain.
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Home » Business » Indigo, Inc., a calendar year S corporation, has no AEP. During the year, Amir, an individual shareholder of the corporation, receives a cash distribution of $18,500 from Indigo. Amir's basis in his stock is $15,000. In this case:
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