Maddie owns 100% of the stock in Purple Corporation (c corporation) and is actively involved in the business. 

Purple Corporation had accumulated earnings and profits of $51,000 on Jan. 1, 2020. 

Maddie’s basis in the stock on January 1st was $20,000. 

On Jan. 1, 2020, S corporation status was elected for Purple Corporation. 

During the year, Maddie contributed land in exchange for additional shares of stock. 

The land had a FMV of $55,000 and an adjusted basis of $53,000. 

The land was subject to a debt of $15,000. 

During 2020, Purple had ordinary business income of $70,000. 

Purple made a cash distribution to Maddie at the end of the year of $58,000. 

Determine the tax treatment for the distribution and Maddie’s basis at the end of the year (after the distribution). 

Determine the ending balance in AAA and AEP (after the distribution).

Answer rating: 100% (QA)

When Purple Corporation elected S corporation status on January 1 2020 its accumulated earnings and profits of 51000 became irrelevant for tax purpose... View the full answer