LO6 On January 1 2015 Kinney Inc an S corporation reports 40

LO.6 On January 1, 2015, Kinney, Inc., an S corporation, reports $4,000 of accumu- lated E&P; and a balance of $10,000 in AAA. Kinney has two shareholders Erin and Frank, each of whom owns 500 shares of Kinney\'s stock. Kinney\'s nonse- parately stated ordinary income for the year is $5,000. Kinney distributes $6,000 to each shareholder on July 1, and it distributes another $3,000 to each shareholder on December 21. How are the shareholders taxed on the distributions?

Solution

AAA is $15000 ($10000 + $5000) as of Dec 31, 2015 proceeding considering the two distributions. In this way, the total of the distributions ($18000) surpasses Kinney\'s AAA by $3000. A segment of the $15000 AAA adjust is allotted to each of the Feb 1 and Sep 1 distributions, in light of the particular sizes of the distributions, as takes after:

Feb 1: 12000/18000 x 15000 = $10000

Sep 1: 6000/18000 x 15000 = $5000

In this way, Erin and Frank must both report profit pay of $1000 for the Feb 1 dissemination and $500 each for the Sep 1 circulation. Accepting that the investors have adequate premise in their stock, both Erin and Frank each have $7500 return of capital from AAA.

Subsequently, the investors will be saddled $1500 profit wage each on appropriation