S Corp that has AEP. distribution order

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  • #3306050

    for the 2nd step, distribution that is in excess of adj basis, but less than AAA, why is that portion of excess distribution characterized as capital gain? if it reduces AAA, which is undistributed PTI, then it has already been taxed.

    i understand that it is distribution in excess of basis. such is a capital gain, but that distribution is coming out of AAA to the extent of the excess distribution.

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  • #3306077

    I'm not sure I understand your question exactly.
    but… I think this is an issue of inside basis vs outside basis.
    Inside basis still shows an amount in AAA, but outside basis is already reduced to zero
    (otherwise the distribution would not be in excess of basis)
    make sense?

    Memento Mori - Kingston NY CPA & EA (SUNY Albany 2002)

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