Arrow, a calendar year S corporation, distributes $25,000 cash to its sole shareholder, Oliver, on December 31, 2021. On January 01, 2021, Oliver’s basis in his S corporation stock was $23,500. Arrow’s AAA balance at the beginning of the year (Jan. 01) was $17,500. Arrow’s records reflect the following information for the year (2021):

Ordinary Income of $20,000

Charitable Contributions of $18,000

Dividends from a U.S. corporation of $20,000

Long-Term Capital gain of $19,000

Long-Term Capital loss of $23,000

Short-Term capital loss of $13,000

In addition, Arrow has $1,000 remaining AEP (Accumulated Earnings and Profits) from its conversion from a C corporation.

How is Oliver taxed on this distribution and what is Oliver’s basis in Arrow after the distribution? Be sure to calculate year end AAA. Explain your answer.

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Hello dear student Under Taxation Laws Distributions to S Corporation shareholders are taxed as part ... View the full answer