Shareholder's Basis in S Corporation Stock
Response to the following problem:
An S corporation (with a $5,000 balance in its AAA and $8,000 of E&P) distributes $15,000 to one of its shareholders. The shareholder's adjusted basis in his shares of stock was $12,000 prior to the distribution.
a. Is the shareholder taxed on the distribution, and if so, how?
b. Compute the shareholder's basis in the S stock after the distribution.