TTB pg 19-10 example Accum Adj Acct

[AZ-Tax]

Example: On January 1, 2009, Shannon formed Chalker, Inc., an S corporation.
For tax year 2009, the S corporation passed through income of $16,000 that Shannon reported on her individual tax return. The income was a positive adjustment to the accumulated adjustments account. Shannon did not receive any distributions in 2009.
In 2010, Shannon took a distribution of $15,000 from Chalker, Inc. Since the accumulated adjustments account had a balance of $16,000, the distribution was not taxable
to Shannon. The distribution caused a negative adjustment to the accumulated adjustments account, which had a balance of $1,000 after the distribution.

In the example it says Shannon "reported the pass through income of $16K on her individual tax return (I assume 2009 but does not mention a TY)". Then its says "Shannon did not recieve any distributions in 2009". Ok, I understand the $16K cannot be taxed twice but what am I missing where Shannon reports the income on her individual tax return but does NOT physically recieves the income?

[JohnH]

You're not missing anything. The net income of the S corp is reported on the personal tax return(s) of the shareholder(s), regardless of whether or not it is paid out to them in cash or property. No different in this sense than a sole proprietor or partnership, where the net income is reported on the personal tax returns even if no "draws" are taken from the company accounts.

It is simply there available to be taken out with no fruther tax consequences whenever they wish to take it.

[Nashville]

The AAA

No, I don't mean American Automobile Association.

Having a $1000 negative balance in the AAA is a moot point.

Where there MIGHT be a problem is taking distribution in excess of basis and "loan basis." This could result in a reportable capital gain. There is an excellent "Basis" calculation worksheet in the Small Business Version if you have it.

[taxxcpa]

S Corp

Example: Then its says "Shannon did not recieve any distributions in 2009". Ok, I understand the $16K cannot be taxed twice but what am I missing where Shannon reports the income on her individual tax return but does NOT physically recieves the income?

Income is income whether or not it is physically moved from a business or left there.
Since the S corp is a pass-through entity it's income is taxed just like it would be on a Schedule C, taxable whether withdrawn or left in the business. Otherwise you could operate an S corp forever and never distribute the money and avoid the tax on the income, assuming that you had other sources of income that enabled you to let it accumulate.

S Corp profits are reported on page 2 of Schedule E.