Discussion Archives:S-Corp Dividend (not Distribution)

Am I looking at this properly?

I presume the only place this appears on the S-Corp 1120S is under Schedule B Line 8 and on 1120S Line 17c. It appears that the S-Corp is not taxed for this dividend distribution as the prior C-Corp would be. Is this correct?

Lastly, I expect to pay taxes on my 1040 for the dividend distribution ... do these types of dividend distributions qualify for the lower dividend tax rates (10-15%) or are they not eligible?

Thanks in advance.

S CORPS DO NOT PAY DIVIDENDS!

Distributions can only come from the accumulated earnings acct portion of the r/e.

As to the question of accounting, from a GAAP perspective, both AAA distributions and AE&P distributions are "dividends". Whether you debit separate GL accounts or one GL account is personal preference.

Yes, a 1099-DIV gets filed for the distribution from AE&P but not from AAA. On the 1120S, distributions paid from AE&P (i.e. tax "dividends") get reported on Form 1120S, Schedule K, Line 17c. Distributions from AAA get reported on Sch K, Line 16c as well as Sch M2 Line 7.

Some preparers would also put it on the M-2. But that is technically incorrect, as the Federal M-2 includes only AAA, OAA & PTI. AE&P is neither of these. However, the "accountant" inside of all of us really wants the sum of those 3 columns on the M-2 to equal the balance in Retained Earnings account. But that isn't always the case.

For any that might want to distribute AE&P ahead of AAA, Line 17c shows as "Dividend distributions paid from AE&P." If you use ProSeries, enter the total distributions in the Smart Worksheet above Line 16d, then go to the M-2 Smart Worksheet and check the box to make the election to distribute E&P before AAA. ProSeries will then look at the AE&P balance shown on the M-2 worksheet and apply the distribution first to it, then to AAA.

On 1120S Schedule B Line 8: "Enter the accumulated earnings and profits of the corporation at the end of the tax year".

I presume that if I made the election under Sec. 1.1368-1(f)(2)(i) to treat the distributions as coming first from C corp retained earnings, then from S corp earnings and I paid a "dividend" of the same dollar amount on 12/31/2006, that the balance in AE&P after the payment of the dividend would be zero, right?

In other words, the amount I would enter on 1120S Line 8 would be zero because I zeroed out AE&P by paying the dividend. Please confirm. Thank you in advance.

Thanks in advance and hope you are all doing well this tax season.

Erik

Does the dividends from AEP have to declared and paid evenly to all 3 shareholders or can I pay it to the one shareholder who was there when it was a c corporation . I think this might be a corporate law question. If you could give me any guidance. thanks

Additional questions:

1) Schedule B, Line 7: Client had $15K in AR while a C Corporation which carried over to the S Corp and has now been recognized. I netted the payables that were on the books as a C Corporation against the AR and then inserted that amount onto Schedule B, Line 7. Sound good?

2) The BIG tax on the AR was calculated at 35% of the net AR/AP carryover from the C Corporation. This tax then flows to Page 1 of the 1120S as it is allowed as a deduction to the S Corp. Now, my M1 is out of balance with the Schedule K, Line 18 by the amount of the BIG tax. Should the BIG tax be included on the M1 schedule as a timing expense difference? I can't get it to balance any other way.

3) Schedule M2 Smart Worksheet, Line D: Proseries asks us to "Enter beginning of tax year balance of the Accumulated tax/Book timing differences". Does this mean that I need to look at my M1 schedule for 2005 and then add all of those temporary adjustments even though the Corp was a "C" Corp in the prior year?

THANK YOU!

1) Might be right but, did you consider goodwill in determination of BIG? What about fixed asseets? (Any Section 179 depreciation taken resulting in $0 basis hard assets that have value at date of S election?)

2) BIG tax would not be a timing difference. Did you record the BIG tax on your TB in deriving book-basis net income?

3) I think so. (I'm at home, so can't look at Pro Series just now).

Addendum question: I assume you are referring to the stock basis in the hands of the stockholder. Whatever his/her/their stock basis was in the C corp would be the starting point for determining basis in the S corp.

In terms of the GW, they would have needed an appraisal I think at the time (01/06) to arrive at that amount, no? Not quite sure how to deal with the GW issue.

I recorded the BIG tax on the TB as a payable due to Treasury as of 12/31/06 but the TP is on the cash basis. If the taxpayer is on cash basis, it should be an addback just like the other payables, right? I take it that this is NOT a permanent addback like Federal Income Tax, right?

I think all is is OK for now :)

I will pay the old retained earnings in 2007. I will then pay AAA.

Is the election just attached to the tax return when it is due 1120S 2008 due 3/15/08?, or does the goverment need to be notifed prior. I use lacerte .Thank-you

(And I will keep my mouth shut about CPAs who don't read regulations <G>.)

1) Do i need to report distribution on Schedule K, if so which line? 2) On schedule L, i just report the distribution in line 24 as retained earnings (RE minus distribution), right? 3) Which line item should i use to report the distribution in Schedule M-2?

Did you pay yourself a reasonable salary? Does the AAA account have a credit balance?

I'm liquidating an S corp, distributions have exceeded basis. So there is some gain resulting from the liquidation.

Is there a way for a 1120 S corporation to issue qualified dividends from its 2009 net taxable profits, if it never was a C Corp?