What is undistributed previously taxed income?
* Previously Taxed Income (PTI). This account, officially called “shareholders’ undistributed taxable income previously taxed,” consists of items of income and loss for all S Corp. years beginning in 1982 or earlier, less distributions deemed to have been made from this account.
Can you distribute from OAA?
Once the allocation is made to AAA and OAA, the distributions can be sourced. Distributions are sourced first from AAA to the extent of positive AAA after considering the income, loss and deduction items for the year unless the net negative adjustment rule applies or an election discussed in Issue 3 is elected.
What is the difference between OAA and AAA?
The OAA reconciles those items that increase or decrease a shareholder’s stock basis but not AAA, primarily tax-exempt income and deductions attributable to tax-exempt income.
What is the difference between AAA and basis?
The larger the AAA balance, the more likely a distribution will not be taxed as a dividend. Similarly, AAA is decreased for the same items that decrease basis, except for non-deductible expenses related to tax-exempt income. Unlike stock basis, AAA may be reduced below zero, but only by losses, not by a distribution.
What is the difference between AAA and retained earnings?
“The main difference (between retained earnings and AAA on the 1120-S) will be (due to) timing differences between book and tax (reporting obligations). For example, if the book depreciation is less than the tax depreciation, the retained earnings account on the balance sheet will be larger than the AAA balance.”
Should AAA match retained earnings?
1. If the corp has shown an overall profit since the date of incorporation and there are no “timing” differences between the books and the return, then the AAA account will equal Retained Earnings and Retained Earnings will have a positive balance. 2.
Can distributions cause AAA to go negative?
AAA can be taken negative by a loss, but not by a distribution. See Example 2 on page 2. (This favorable rule allows an S corporation to always be able to distribute the positive balance of the prior years ending AAA without it being taxed as a dividend.)
Does nontaxable income increase AAA?
Same adjustments as basis except different ordering rules (discussed in decision tree) and no increase for tax- exempt items. AAA can be taken negative by a loss, but not by a distribution. To the extent the distribution exceeds AAA, it is a taxable dividend to the extent of the E&P balance.
What happens if AAA is negative?
Same adjustments as basis except different ordering rules (discussed in decision tree) and no increase for tax- exempt items. AAA can be taken negative by a loss, but not by a distribution. To the extent the distribution exceeds AAA, it is a taxable dividend to the extent of the E&P balance. See Example 3 on page 2.
How is AAA account calculated?
The amount of the AAA allocated to each distribution is determined by multiplying the balance of the AAA at the close of the current taxable year by a fraction, the numerator of which is the amount of the distribution and the denominator of which is the amount of all distributions made during the taxable year.
