S Corporation AAA account

[SusanA1]

Looking for some guidance regarding the AAA account.  One of the shareholders of an S Corporation sold his shares in an S corporation (50% of company) to an unrelated party.  He sold his shares for $25k and his basis was $40k.   I am working on the S corporation tax return.  I am showing the new owner with zero inside basis and $25k outside basis.  Do I leave the $40k in undistributed income in the AAA and in the retained earnings on the balance sheet? 

[sjrcpa · Accepted solution]

Retained Earnings does not change due to a sale of stock outside of the S Corporation.

I think AAA only gets reduced when the S Corp buys back a shareholder's stock, but I would have to research this.

[SusanA1]

Thank you.