Accumulated adjustment account (AAA): Nontaxable to the extent of shareholder basis.
For pre-1983 S corporations only: Previously taxed income (PTI): nontaxable.
Accumulated earnings and profits (AE&P): Taxed as a qualified dividend at 15% through 2010.
Return of capital: Nontaxable to the extent of remaining stock basis
Capital gain from the deemed disposition of stock: taxed as long-term capital gain if held for more than one year.
SPECIAL ELECTION TO TREAT DISTRIBUTIONS AS FIRST FROM AE&P
An S corporation with AE&P can irrevocably elect to treat its distributions for the year from AE&P source funds. This treats distributions as taxable dividends first to the extent of AE&P. This election requires the consent of all shareholders that received distributions during the tax year in question.
SPECIAL ELECTION: DEEMED DIVIDEND
A deemed dividend does not require the actual distribution of cash. The S corporation makes an irrevocable election in the same manner as it would make the election to distribute earnings and profits first. Thus, this election allows the corporation to distribute all or part of its AE&P without transferring any cash to its shareholders.
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