1 Distributions made by an S corporation result in the recog

1. Distributions made by an S corporation result in the recognition of gross income only when made out of accumulated earnings and profits, or when the sum of the amount of cash and the fair market value of the property distributed to a shareholder exceeds the basis of his/her stock investment in the corporation. true or false - explain you answer!

2. For any tax year, an S corporation can elect its distributions as coming first from its C corporation accumulated earnings and profits if all shareholders who receive a distribution during the tax year consent to the election. This election remains in effect for all tax years thereafter. True or False - explain your answer

Solution

1) & 2) true

Distributions are payments of cash or property to shareholder based on stock ownership. S corporation distributions are governed by IRC Section 1368. Distributions have no effect on the current share of income that is taxable to shareholders. Whether or not a distribution is taxable or not depends on whether the S corporation has any accumulated E & P from C years or as an S corporation in preSSRA years.