Even though an S corporation was formerly a C corporation, all of its cash distributions can be confidently treated as nontaxable if there is no AEP from its C corporation years and the distribution does not exceed the shareholder's basis in the S stock.

Question

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When an S corporation was formerly a C corporation, it is still subject to certain rules regarding its accumulated earnings and profits (AEP) from its C corporation years. However, if there is no AEP, all cash distributions from the S corporation can be treated as nontaxable as long as the distribution does not exceed the shareholder's basis in the S stock.

Even Though an S Corporation Was Formerly a C Corporation