At the beginning of the year, Clampett, Inc. had $100,000 in its AAA, $60,000 of earnings and profits from prior C corporation years. During the year, Clampett, Inc.earned $50,000 of ordinary income and paid $200,000 in distributions to its shareholders. Assume that J. D. owns 25% of Clampett, Inc., his basis in Clampett, Inc. at thebeginning of the year is $10,000, and his share of the distribution was $50,000. How much income does J. D. recognize this year from these transactions?

Question

Quizplus · Accepted Answer

J.D. recognizes income to the extent that the distribution exceeds his basis. His share of the distribution is $50,000, and his basis is $10,000, so he recognizes $40,000 as income.

At the Beginning of the Year, Clampett, Inc