Indigo, Inc., a calendar year S corporation, has no AEP. During the year, Amir, an individual shareholder of the corporation, receives a cash distribution of $18,500 from Indigo. Amir's basis in his stock is $15,000. In this case:

Question

Business

Beanpole

2 April, 03:46

Indigo, Inc., a calendar year S corporation, has no AEP. During the year, Amir, an individual shareholder of the corporation, receives a cash distribution of $18,500 from Indigo. Amir's basis in his stock is $15,000. In this case:

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Answers (2)

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Callum Hart · Answer 1

Amir receives $15,000 tax free.

Refer below.

Explanation:

Indigo, Inc., a calendar year S corporation, has no AEP. During the year, Amir, an individual shareholder of the corporation, receives a cash distribution of $18,500 from Indigo. Amir's basis in his stock is $15,000. In this case:

Amir receives $15,000 tax free.

Sophie Cobb · Answer 2

Amir's basis is $0, so he/she is no longer a shareholder, and must pay taxes only for the $3,500 capital gain.

Explanation:

Accumulated earnings and profits = $0, so it should not distribute dividends. What probably happened is that Indigo is repurchasing Amir's stocks:

Amir's gain/loss on the distribution = $18,500 cash - $15,000 basis = $3,500 gain

So now Amir's basis is $0, so he/she is no longer a shareholder, and must pay taxes only for the $3,500 capital gain.