Ed Zollars, CPA wrote:
- quote -

Thanks a lot for a very comprehensive reply.

Does the above answers hold true for a LLC as well, electing
to be taxed as a Partnership?

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Vijay Sharma wrote:

- quote -

It doesn't matter if you maintain different books--the
distributions are governed by =A71368 which is concerned
primarily with whether or not you have earnings and profits.
In that case, distributions offset basis of the
shareholder, then create capital gain (=A71368(b)).

- quote -

Yes, per =A71368(b)(2).

- quote -

This is a shareholder calculation, not a corporate one, so
the K-1 only reports the total distribution. The taxpayer
computes the effect of distributions and then would report
any excess of distributions over basis on Schedule D. But
the K-1 would not "pass out" any capital gain--that's only
for gains recognized in the corporation itself.

- quote -

=A71368 is applied on a shareholder by shareholder basis,
since shareholders don't have to have proportionate basis
(such as if one purchased his shares or obtained them long
after startup, or inherited the shares which would obtain a
basis adjustment to FMV on the date of death or the
alternate valuation date, as applicable).

- quote -

That's correct--that's why it's a shareholder by shareholder
calculation and why the corporation doesn't report it.

--
Ed Zollars, CPA
Podcast at http://ezollars.libsyn.com

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

If I maintain separate accounts on the books for investment
and retained earnings (profit & loss), for distribution
purposes what do I pay out of first - retained earnings or
investment? Assume on prior C Corp earnings or PTI.

If the distribution exceeds the shareholder basis
(investment + profit - loss - previous distribution), isn't
the excess treated as a capital gain to the shareholders?
Correct me if I am wrong - this capital gain would go on
Schedule K (lines 7 or 8 on Form 1120S and lines 8 or 9 on
Form 1065), then to K-1s and Schedule Ds.

In the situation above, is the total distribution paid
compared to the shareholder basis in total (of all
shareholders - as on the balance sheet) or distribution
amount to each shareholder compared to his/her basis? In
the latter case, some shareholders' distribution could
exceed their basis and some would not, depending on each
case.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >