OT: Treatment Of Distributions Over AAA

[geekgirldany]

After reading all of this I think the true problem is right at the beginning of a corporation when someone suggests that a distribution could be a loan and thereby taxes avoided. I mean, where would a guy off the street even know about such things if nobody ever explained them?

You know you are totally right on about that.

I heard Dave Ramsey talking the other day about collecting money from clients. He said that if you have a collections problem then something went wrong during the selling process. So basically I am having a problem come up because I did not properly explain about distributions and stock basis. Loan to shareholder should not even be mentioned unless there is actually a loan like Bart said.

Great topic everyone.

[brewstertax1]

S Shareholder Distributions

I put this as OT because I know the tax consequences.

I wanted to ask how most of you all talk to your clients regarding the "overage" of distributions when AAA is dropped to zero.

I know the correct way(s) to treat this. You can either do a loan to shareholder (prefer not) or report on Schedule D of individual.

The problem I am running into with a few clients is when I discuss the situation they automatically want to put it to loan to shareholder. I have to say that I try not to allow LTS to go over $10,000 if possible. I do accrue interest.

I have started leaning towards not even explaining it to the client. I mean not go into so much detail. I feel like all they hear is "If you do this you will get back $this much, if you do it the other way you will get back this $much". But then again I feel like they need to know.

I've took on three new clients this year where a local accountant allowed the Loan To Shareholder to get over $100,000 if not more. I can't and won't do this.

So if any of you could provide some insight on how to discuss this with clients I would really appreciate it.

Dany

Based upon my research and consulting also with NATP, when there is still shareholder basis, but AAA is "0", you can reduce paid in capital or it would appear capital stock itself. Of course that reduces overall basis, but is not a taxable event.

[Roland Slugg]

Based upon my research ...

Hello brewstertax, and welcome to this board. I see this was your very first post. You selected and replied to a question that was posted here over seven years ago. You may not have noticed how old it was, and I can't imagine how you happened to find it, but in case you didn't notice, all posts here are dated.