Redemptions Taxed as Distributions Under §301 During Post-Transition Termination Period First Reduce AAA

If a former S corporation makes a distribution to redeem shares that is treated as equivalent to a dividend and, therefore, taxed under IRC §301 during its post-transition termination period, how is that taxed?  In Revenue Ruling 2019-13 the IRS answers that question which likely has not been keeping most of America awake at night awaiting an answer.

The relatively short ruling looks at whether that distribution first reduces the accumulated adjustment account (AAA) and the taxpayer’s basis in the stock or, rather, is treated as first coming out of earnings and profits. 

Read More