Question

Holbrook, a calendar year S corporation, distributes $15,000 cash to its only shareholder, Cody, on December 31. Cody's basis in his stock is $20,000, Holbrook's AAA balance is $8,000, and Holbrook has $2,500 AEP before the distribution. According to the distribution ordering rules, complete the chart below.

If an amount is zero, enter "0".


Distribution from Account Affect on Stock Basis Balance after Distribution

From AAA Account $-8000 $8000 $0

From AEP Account $2500 $0 $0

From Cody's stock basis $_____ $_____ $_____

Answer 1

From Cody's stock basis

$4,500, -$4,500, $7,500

Step-by-step explanation:

Stock basis is original value of stock plus adjusted basis. The default distribution ordering rule enables to distribute income and expense. Cody's has $20,000 in his stock and Holbrook has $2,500 AEP before distribution.The Cody's stock basis after distribution will be affected. Cody's stock basis will be $4,500, -$4,500 and $7,500. The distribution of account affect on stock basis after the distribution.