Tax Facts

IRS Clarifies Treatment of Cash Distributions by Former S Corporation During the Post-Termination Period, May 30, 2019

The IRS has clarified that cash distributions made by a former S corporation during the entity's post-termination period in redemption of its stock reduce the adjusted basis in the stock to the extent that the distribution does not exceed the accumulated adjustments account value. This is the case if the distribution is treated as subject to Section 301, rather than as a distribution in exchange of stock.The amount of the distribution value that exceeds the accumulated adjustments account is treated as a dividend.For more information on the treatment of S corporations that convert to C corporations, visit Tax Facts Online.
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