Sub S-Distribution Exceeding AAA

[Uncle Sam]

In a Subchapter S Corp., if distributions exceed AAA, I understand there's a long term capitcl gain for the shareholder.
Does the corporation have to issue a 1099, and if not, how does this show up on the shareholder's 1040?
For example if AAA, beginning is $ 1,000
Profit for Year is 10,000
Distributions 11,500

AAA, Ending - $ 500

Does S Corp issue a $ 500 1099? How is this shown on shareholder 1040?

[dsi]

In a Subchapter S Corp., if distributions exceed AAA, I understand there's a long term capitcl gain for the shareholder.
Does the corporation have to issue a 1099, and if not, how does this show up on the shareholder's 1040?
For example if AAA, beginning is $ 1,000
Profit for Year is 10,000
Distributions 11,500

AAA, Ending - $ 500

Does S Corp issue a $ 500 1099? How is this shown on shareholder 1040?

Your client will have to pay LTCG tax IF his excess distribution is MORE than his stock basis. If the $500 doesn't exceed his stock basis, then no CG tax. Just reduce his R/E by the $500.

[dsi]

Also, no 1099 required.

[BOB W]

What Dave......

.... is saying, you also have to look at his Capital account. Also, if there are "Loan From Officers" the extra distribution can be applied there.

For $500, I usually treat it as a " Loan to officer" but I first look at the reason for the available cash. Was an Asset purchased on credit and Sect 179 taken? If so, I view it as a temporary rather than perminent "glitch". I am not advising that you do the same but that is what I do.

[DaveO]

When all else fails and the LTCG has to be reported

I have entered it under Capital Gains Distributions avoiding the appearance of selling a stock on the schedule "D".

[rosieea]

I have entered it under Capital Gains Distributions avoiding the appearance of selling a stock on the schedule "D".

Please enlighten me. My understanding is that a distribution in excess of basis is treated as a sale of stock at zero basis on schedule D. What advantage is there to treating it as a capital gain distribution? And aren't capital gain distributions largely confined to mutual funds? Seems to me that you'd be inviting scrutiny.

[dsi]

DaveO, it truly is a sale of stock, and that's how it should be reported.

[Brad Imsdahl]

An S corporation distributing money to a Stockholder has only one obligation. To report the distribution on the K-1, line 16, code D.

Period

End of story

The S corporation has no information on the shareholder's stock basis. The S corporation does not know or care what the shareholder does with the distribution on the tax return. The only obligation of the S corporation is to report the distribution on the K-1, and let the shareholder figure out what to do with it.

Having said that, when I do an 1120S, IF I have shareholder basis info, I spell out what happened in an attachment to the K-1 so that the guy doing the 1040 knows what is what. But that is not required, nor is any 1099 required.

[dsi]

As the tax return preparer, it is your responsibility to report it properly. BTW, was this corp ever a C corp prior to electing s-status? I ask because there may be some accumulated E&P to consider.

[Uncle Sam]

Sub S-Distribution Exceeding AAA

In one case I've got, it was a prior C Corp, in another corporation it never was a C-only an S. In the strictly S corp, there are no loans payable (or receivable).
In the prior C corp, all prior earnings have already been distributed (prior to my coming on board).

My concern is in the prior C corp, a brother and sister each own 50%. I'll be doing the sister's return but not the brother's. How is the brother supposed to know that he's got a LTCG?
And, how am I supposed to disclose it on the sister's return I AM doing?
Okay - from Brad's post - no 1099 from corporation - but how is it shown on 1040?

[rosieea]

And, how am I supposed to disclose it on the sister's return I AM doing?
Okay - from Brad's post - no 1099 from corporation - but how is it shown on 1040?

Schedule D, probably long term: Use the S Corp name as the description. Acquisition date = when stock was acquired; date of sale = 12/31/06; selling price = amount of excess distribution; basis = zero.

[BOB W]

Hey...............

............Thanks Matt. I thought I was the only bad boy here.

Trivial "end of the year" distributions should not be garbaged up with such cluttered transaction on Schedule D. Like I said earlier, I look at the reason for a cash basis business to have the ability to have excess distribution.

Not only have I, but will continue to report these distributions on Schedule D if it looks like it is NOT a self-correcting situation.