Melba receives a distribution of $210,000 from an S corporation in which she is a 25% shareholder.At the same time,the corporation distributes $630,000 to the other shareholders.The corporation has AAA of $140,000 and AE&P of $20,000.Melba's basis for her stock is $50,000.Which of the following is the correct amount of Melba's capital gain resulting from the distribution?
A)$0.
B)$120,000.
C)$155,000.
D)$210,000.
E)None of the above.

Question

Quizplus · Accepted Answer

The sequence of the distribution for Melba as an S corporation shareholder is as follows: 11ea7f05_2e9b_8777_92e1_0781991f1b8c_TB4123_00 When Melba reduces her share of AAA by $35,000,she also reduces her stock basis by $35,000.Since her stock basis account only has a balance of $15,000,the remaining $155,000 of the $210,000 distribution to Melba is capital gain.

Melba Receives a Distribution of $210,000 from an S Corporation