How do I allocate distributions to only 1 K-1?

[NoelC]

Hello,

This is on the S-corp tax return, which only has 2 K-1.  The cash distribution was only to one owner, how do I show 100% of distribution on his K-1?  I don't see an allocation page on this.

Thanks!

[IRonMaN]

Distributions are supposed to be according to ownership percentages.  Doing otherwise kills your sub S election.

[NoelC]

Got it!  Thanks!

[IRonMaN]

You betcha!

[PhoebeRoberts]

The Distributions screen requires you to make entries by shareholder, unlike in the 1065 package.

There's been a recent court ruling that says disproportionate distributions, when not allowed by the operating agreement, doesn't bust your S-election. It's been in the last 3 weeks, and the fact pattern was that the guy who didn't get cash didn't want to pick up his share of the income, and argued that the S-election had been busted and you don't get pass-through income from a C-corp. Tax Court disagreed!

[qbteachmt]

Thanks, @PhoebeRoberts . Is there guidance for how to handle that difference, eg Owed to Shareholder that didn't get a distribution or Owed By Shareholder for the difference distributed?

[PhoebeRoberts]

Either of those works. I think "Due to Guy Who Didn't Get Paid" is maybe technically more correct, but it probably depends on state law.

[sjrcpa]

@PhoebeRoberts  I found that case odd because the reason the one guy didn't get paid is because the other shareholders [allegedly?] embezzled the funds they took.

[PhoebeRoberts]

Yeah, that was definitely a bad facts case. If the Tax Court had ruled in the shareholder's favor, the statute would have already run on the corporate return, though, and "no one ever pays tax on that enormous chunk of money" is never going to be the ruling if there's an argument that gets it taxed. But the logic was that the taxpayer was entitled, under state law / the corporate organizing documents, to get an equal distribution.