Lello's basis in his S Corp shares is $3,000.  In its first year of operation as an S Corp, the corporation had an ordinary business income of $8,000. It also has a tax-exempt income of $1,000. The corporation had $2,000 of C Corp earnings and profits accumulated prior to the S Corp election.  The corporation distributes $10,200.

1) What is the O/S A/B of the shares before any distributions are made?  

2.  How much of the $10,200 distribution is taxable to Lello? 

3.  What is the character of any income from the distribution?  

4.  How much of the distribution is treated as a return of capital?  
5. What is the shareholder’s basis in the shares at the beginning of the following year?

Answer rating: 100% (QA)

Balance in AAA at the end of the year before distribution 80... View the full answer