Taxes: Distributions & Special Deductions

Question 1

Taxes:
Distributions & Special Deductions
Distributions

Answer 1

Distributions
- corporation generates gain by distributing appreciated property
- no tax on S Corp, taxed on shareholder
- shareholder income if S corp has no E&P, distribution creates gain to shareholder if distribution > adj basis
= cash + value of property distributed
- distribution > adj basis = gain from sale of stock (most likely capital gain)
- shareholder income if S corp has E&P, distribution

Question 2

Taxes:
Distributions & Special Deductions
Built In Gains Tax

Answer 2

Built In Gains Tax

• S corp is taxed if sells property with value in excess of basis as of 1st year
• 35%, limited to built in gain
• only if sold in 1st 10 years
• built-in losses can offset gains in same year
• limited to S corp TI for year

Question 3

Taxes:
Distributions & Special Deductions
Passive Investment Income Tax

Answer 3

Passive Investment Income Tax

• excessive passive income > 25% gross reciepts
• IRS may waive if
• only if once was a C corp