Any distribution of cash or property by a corporation that does not exceed the balance of AAA with respect to S stock during a post-termination transition period of approximately one year is applied against and reduces the basis of the S stock.

Question

Quizplus · Accepted Answer

The statement incorrectly describes the treatment of distributions in relation to the Accumulated Adjustments Account (AAA) and basis of S corporation stock. Distributions from an S corporation are generally tax-free to the extent of the shareholder's stock basis, not specifically tied to the AAA balance nor directly reducing the stock basis during a post-termination transition period. The AAA is used to track the S corporation's undistributed taxable income previously taxed to shareholders and affects distributions during the S corporation's existence, not specifically in the context described.

Any Distribution of Cash or Property by a Corporation That