Hector formed H Corporation as a C corporation at the beginning of 2018. Hector was the sole shareholder of H Corporation. H Corp. reported 2018 taxable income (and earnings and profits) of $200,000. At the beginning of 2019, H Corp. elected S corporation status. During 2019, H Corp. had a rough year, reporting an ordinary business loss of $70,000, $4,000 of dividend income, and $3,000 of interest income. H Corp. also distributed $15,000 to Hector. What is the amount and character of gain/income Hector must recognize on the distribution (if any)? What is the balance in H Corporation's accumulated adjustments account (AAA) at the end of 2019?

Question

Quizplus · Accepted Answer

The Answer of Hector formed H Corporation as a C corporation at the beginning of 2018. Hector was the sole shareholder of H Corporation. H Corp. reported 2018 taxable income (and earnings and profits) of $200,000. At the beginning of 2019, H Corp. elected S corporation status. During 2019, H Corp. had a rough year, reporting an ordinary business loss of $70,000, $4,000 of dividend income, and $3,000 of interest income. H Corp. also distributed $15,000 to Hector. What is the amount and character of gain/income Hector must recognize on the distribution (if any)? What is the balance in H Corporation's accumulated adjustments account (AAA) at the end of 2019?

Hector Formed H Corporation as a C Corporation at the Beginning