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 At the end of the year, before distributions, Bombay (an S corporation) has an 

accumulated adjustments account balance of $17,800 and 
accumulated E&P of $23,500 from a previous year as a C corporation. 

During the year, Nicolette (a 40% shareholder) received a $23,500 distribution 
(the remaining shareholders received $35,250 in distributions).

(Assume her stock basis is $47,000 after considering her share of Bombay’s income for the year but before considering the effects of the distribution.)

 

Required:

  1. What are the amount and character of income or gain Nicolette must recognize from the distribution?
  2. What is her basis in her Bombay stock at the end of the year?
Descrip tionAmountCalculationNOTE
(a)Total Distribution         23,500
(b)Bombay Accumulated Adjusted Account beginning balance         17,800
(c)Distribution from Accumulated Adjusted Account         17,800Lesser of (a) or (b)
(d)Prop in excess of Accumulated Adjusted Account         23,500
(e)Nicolettes Share Basis           7,120(c) x 40%
 nontaxable
(f)Nicolettes Beginning Stock         47,000
(g)Nicolettes Reduced Basis         39,880(f) – (e)  
(h)Bombay E&P         23,500
(i)Dividend distribution E&P         23,500
(j)Nicolette’s share dividend              9,400(h) x 40%
(k)Nicolettes Share Basis           6,980(h) – (e) – (j)
(l)Nicolettes ending Basis             32,900(g) – (k)








Currently, I am an MBA student at EIU. This blog will follow my studies in Corporate taxation

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