S-corp distribution

[NotEasy]

Anyone really familiar with S-corp tax issues here? Here are the facts (I use round numbers though):

(1) the S-corp was not a C-corp before. So there is no subcharter C earnings and profits.

(2) It is a 2nd year S-corp. Last year (2008) the year end balance of the AAA on M-2 is -3,000.

(3) In 2009, the S-corp had a loss too. And the AAA year end balance is negative again.

(4) The sole (100%) shareholoder did make a withdrawal of his own capital last year. How the withdrawal is to be accounted for? I tried to put it as a distribution on line 7 of Schedule M-2 but my tax program refuses to let me do it. It also gives a message that the distribution is taxable to the shareholder if the AAA balance is negative. But how could it be taxable if the shareholder has just withdrawn his own capital?

I hope there are S-corp experts around here who can help.

[BOB W]

Find in your program the "Basis" worksheet. Make sure all beginning balances are correct. Beginning balances are last years ending balances, so make sure 2008 basis worksheet is correct. The worksheet is made up of two areas, Capital and Loans. In 2008 the starting balances are zero.

Review all lines for the 2008 worksheet and add or subtract as needed.