Micaela owns all the shares of the Madison Corporation that operates as an S corporation.Micaela's basis in the stock is $40,000.During the year she receives a cash distribution of $10,000 from Madison.What must Micaela and Madison report as income from the cash distribution?

Micaela Madison
A)$-0- $-0-
B)$10,000 $-0-
C)$-0- $10,000
D)$10,000 $10,000

Question

Micaela owns all the shares of the Madison Corporation that operates as an S corporation.Micaela's basis in the stock is $40,000.During the year she receives a cash distribution of $10,000 from Madison.What must Micaela and Madison report as income from the cash distribution?
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Micaela Madison
A)$-0- $-0-
B)$10,000 $-0-
C)$-0- $10,000
D)$10,000 $10,000

Quizplus · Accepted Answer

In an S corporation, distributions to shareholders are generally not taxable as income if they do not exceed the shareholder's basis in the stock. Micaela's basis is $40,000, and the distribution is $10,000, which does not exceed her basis, so it is not taxable. Madison Corporation does not report the distribution as income.

Micaela Owns All the Shares of the Madison Corporation That