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At the beginning of the year, Myrna Corporation (a calendar year taxpayer) has E & P of $32,000. The corporation generates no additional E & P during the year. On December 31, the corporation distributes $50,000 to its sole shareholder, Abby, whose stock basis is $10,000. How is the distribution treated for tax purposes?

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jepessoa

Answer:

taxable gain of $8,000

Explanation:

accumulated earnings = $32,000

stock basis = $10,000

distribution = $50,000

taxable gain/loss = distribution - (accumulated earnings + stock basis) = $50,000 - ($32,000 + $10,000) = $50,000 - $42,000 = $8,000

Generally single owner corporations get pass-through tax treatment, meaning that the owners are taxed directly in a similar way to a sole proprietorship or partnership.

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