There were no distributions in any of the years.

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- quote -

Yes. Are you confusing retained earnings with earnings and
profits? Earnings and profits is what comes over from a C
Corp that converts to an S Corp. A corporation, either C or
S, would have retained earnings/(deficit).

- quote -

Yes.

- quote -

Are you confusing retained earning with the AAA? Both can
be negative, but AAA cannot be made negative due to
distributions.

How much in distributions were taken over your years in
question?

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Yes it can have retained earnings. Thats' what was
"distributed " to you on a K-1 that you didn't take out in
cash. So, if you lost money and still took out caseh you
could have "Negative" retained earnings.

ed

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I'm doing my first S-Corp return and need some clarification
on some issues.

I'm of the belief that the returns were done incorrectly for
the last two years and as such I am fearful of using their
nimbers. This S Corp has been incorporated for two years and
its first year it had a profit and then a loss. The 2002
return (first year) shows Gross Receipts of over $300k but
Schedule L & M are NOT completed. The 2003 return has
Schedule L columns c&d completed along with M.

It is here where numbers are appearing that I have my
questions. The CPA shows an income of $20k for 2002 & $179
for 2003 and then shows a NEGATIVE $12k of Retained Earnings
on the 2003 return. None of this seems right to me. I
understand this may be so if the Corp had been a C Corp but
it hasn't. There are other mistakes on the return which lead
me to believe the work was overall just sloppy: the CPA
marked YES on the question if the Corporation at the end of
the year owned directly or indirectly 50% or more of a
corporation - BUT, I KNOW IT DOESN'T AND NEVER HAS.

1. If an S Corp has ALWAYS been an S Corp can it have
Retained Earnings?

2. If the answer to question 1 is YES, then can those
Retained Earnings be negative?

3. Am I missing something? And if so - what am I missing.

Thank you for your assistance!

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