Making the S-election avoids double taxation for corporate operations after the election is effective. Consider the special rules related to adjusting the stock adjusted basis, distributions and loss limitations. Rules surrounding the S corporation election are necessary to accomplish the single level of tax at the shareholder level. Evaluate the details of the adjustments to the stock basis. Cover descriptions and illustrations regarding the calculation of the "accumulated adjustment account" (AAA) and determination of whether a distribution is from AAA. Loss limitation rules will be explained and illustrated, focusing on complications arising when distributions and losses occur in the same taxable year. Also, take into account the tax considerations of losses reducing the adjusted basis in shareholder loans. Identify and evaluate tax planning opportunities and strategies.
Learning Objectives
- Recognize the adjustments to stock basis rules
- Characterize the tax treatment of a distribution based on the ability to determine the balance in the accumulated adjustment account (AAA)
- Apply the loss limitation rules considering both stock and debt basis
- Determine the tax consequences of distributions made in the same year that there is a loss
- Identify and evaluate tax planning opportunities and strategies
Major Topics
- Details of the stock basis adjustments when an S election is effective
- Rules that characterize distributions to S corporation shareholders either as potential stock basis reductions or dividend income
- Definition of "accumulated adjustment account" (AAA)
- Special rule when there is a "net negative adjustment"
- The rule limiting losses to stock and shareholder loans to the corporation
- The tax complications related to using shareholder loans to the corporation to deduct losses
- The basis adjustment ordering rules when there are losses and distribution in the same taxable year
- Tax planning opportunities and strategies
