For S corporations without earnings and profits from prior C corporation years, the taxation of distributions is very similar to the rules for partnerships.

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S corporations without earnings and profits from prior C corporation years are taxed similarly to partnerships in terms of distribution taxation. S corporations are generally not taxed at the entity level, and instead, profits and losses flow through to the shareholders and are taxed at their individual tax rates. Distributions to shareholders are generally not taxed if they do not exceed the shareholder's basis in the S corporation stock. If the distribution exceeds the shareholder's basis, the excess is treated as gain from the sale or exchange of the stock.

For S Corporations Without Earnings and Profits from Prior C