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 the beginning 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

$12,500 (share of ordinary income: $50,000 × 25%) + $15,000 ($37,500 AAA distribution in excess of pre-distribution stock basis of $22,500) + $12,500 (distribution treated as dividend: $50,000 × 25%) = $40,000.

At the Beginning of the Year, Clampett, Inc