1120-US: Ordering used when an S Corporation with earnings and profits makes a distribution (FAQ)

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Question

What ordering does UltraTax CS use when an S Corporation with earnings and profits makes a distribution?

Answer

When there is an amount entered in the Nondividend distributions field in the Accumulated Adjustments Account column in Screen Ms and the Allow distributions to reduce AAA below zero field is blank or equals 2, UltraTax CS reduces the following retained earnings accounts.

  1. Accumulated Adjustments Account (AAA) to the extent the distribution does not reduce the account below zero.
  2. Any remaining distribution will then reduce the Undistributed Previously Taxed Income (PTI) account. If the distribution reduces PTI to zero, any remaining distribution will reduce the Other Adjustment Account (OAA) to the extent the distribution does not reduce the account below zero.
  3. Any remaining distribution reduces the Retained Earnings Unappropriated (REU) account.

The REU account in UltraTax CS represents the prior C Corporation Accumulated Earnings and Profits (AE&P) and the accumulation of S Corporation book / tax timing differences, if applicable.

Nondividend distributions cannot reduce AE&P. Distributions from AE&P are treated as dividends to the shareholder. Enter distributions from AE&P in the Dividend distributions paid from accumulated E&P field in Screen Ms.

Related topic: 1120-US: S Corporation distributions and section 1368 distribution elections FAQs

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