S-corp distributions

[DMICPA]

I think I am correct but need a second opinion.

Client has S-Corp, basis is $3,000,000 due to deceased spouse step up in 2010.

2011 Net income is $150,000.

2011 distributions are $200,000.

The excess distributions of $50,000 only reduce the basis and have no tax effect.

Otherwise the excess could be a loan to the officer with interest.

Am I correct?

Bob

[Gretel]

I agree with both, as long as basis is available it is a tax free return of capital. A loan could be an option if the intent is to pay it back.