Finance Exam Prep
Ran Chen, EA, CFP®
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Enrolled Agent Exam [Part 2] 28, S Corp Distributions — Tax Treatment
This podcast is made by Ran Chen, who holds an EA license, Insurance and Securities licenses (Series 6, 63, 65), and the CFP® designation. He is passionate about opening access to high-quality exam preparation resources and helping learners prepare more effectively for professional certification exams. In this episode you will learn: - For S corps with no C-corp history, distributions are a tax-free return of capital up to stock basis, with any excess treated as capital gain. - For S corps with prior C-corp Earnings & Profits (E&P), distributions follow a strict ordering rule: AAA, then E&P, then remaining basis, then gain. - The Accumulated Adjustments Account (AAA) represents undistributed, previously-taxed S corp income; distributions from it are tax-free and reduce stock basis. - A critical exam trap: Distributions from C-corp E&P are taxed as dividends and do NOT reduce a shareholder's stock basis. - The mnemonic "Triple-A Eats Before Gain" helps recall the distribution order: Accumulated Adjustments Account, Earnings & Profits, Basis, and Gain. For more free exam prep tools, practice questions, and AI-powered explanations, visit https://open-exam-prep.com/ or YouTube Channel: https://www.youtube.com/@Open-exam-prep
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