Below is a homework problem for TAX 4011 that I just can’t figure out. The textbook has examples that do not include a shareholder that owners a…
Below is a homework problem for TAX 4011 that I just can’t figure out. The textbook has examples that do not include a shareholder that owners a percentage instead of the whole company. The chapter is S Corporations.
At the beginning of the year, Clampett Inc had $100,000 in its AAA, $60,000 of E&P from its prior C Corp Years. During the year Clampett earned $50,000 of ordinary income and paid $200,000 in distributions to its Shareholders. Assume JD owns 25% of Clampett Inc, his basis in Clampett at the beginning of the year is $30,000, and his share of the distribution was $50,000. How much is taxable as a dividend?
Any insight would be appreciated. I think the AAA would be distributed to JD based on the amount of his ownership ie (50,000*(25,000 for JD’s share + 12,500 for JD’s share if Ordinary income)/Distribution of 50,000)=37,500 from AAA and the remaining 12,500 would be distributed from E&P, but I may be mistaken.
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