Why are distributions limited to balance of AAA when Retained earnings are available?

Forum|Forum|6 years ago
December 7, 2019
2 replies
30 views

Is this a technical problem within ProSeries? I have available retained earnings to put distributions against, but not enough in my AAA. Why does ProSeries automatically limit the distribution to the amount available in AAA and mark the rest as Distributions in excess of Retained Earnings on the M-2 worksheet? Is the only workaround an over ride on the M-2 worksheet?

ProSeries Professional

This topic has been closed for replies.

Best answer by TaxMonkey

Why are your Retained Earnings greater than AAA? Did they used to be a C-corp?

T

TaxMonkeyAnswer

Level 7

Why are your Retained Earnings greater than AAA? Did they used to be a C-corp?

sjrcpa

Level 15

It's the tax law.

The more I know the more I don’t know.

R

rbmuCPAAuthor

Level 3

It is my understanding that distributions are not directly limited by AAA, but distributions in excess of basis are treated as sales of stock and subject to capital gains. Distributions in excess of AAA, is a good indicator that distributions could be taxable, but not the indicator itself or any limiting factor.

The distribution itself is not limited in any way, only the tax treatment of the distribution is called into question. Section 1368 says, "If the amount of the distribution exceeds adjusted basis of the stock, such excess shall be treated as gain from the sale or exchange of property." No language disallowing the excess distribution, only the tax treatment of the excess distribution.

So why the limitation by ProSeries?

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