A distribution of cash or other property by an S corporation to shareholders that does not exceed the balance of AAA during a one-year period following an S election termination receives special capital gain treatment.

Question

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Distributions that do not exceed the balance of the Accumulated Adjustments Account (AAA) are generally treated as non-taxable returns of capital to the extent of the shareholder's basis in the stock, not as capital gains.

A Distribution of Cash or Other Property by an S