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Reporting certain nondividend distributions on Form 5452.

Corporations with accumulated earnings and profits (AE&P) must report nondividend (nontaxable) distributions on Form 5452, Corporate Report of Nondividend Distributions; thus, S corporations with AE&P appear to have to file Form 5452. However, the form instructions state that an S corporation files the form only if it made nondividend distributions under Sec. 1368(c)(3) (covering nontaxable distributions made after the accumulated adjustments account (AAA) and AE&P have been distributed).

Evidently, Form 5452 must be filed by an S corporation only in,the year it has no AAA or previously taxed income (PTI) balance, and makes distributions in excess of its AE&P balance. The form should be attached to the corporation's tax return, Form 1120S, U.S. Income Tax Return for an S Corporation. Copies of Forms 1099-DIV, Dividends and Distributions, sent to the shareholders, should also be attached to the form if there are 12 or fewer shareholders.

The form must be accompanied by a schedule showing a year-by-year calculation of AE&E An S corporation's AE&P generally does not increase and is decreased only in limited situations.


Before considering distributions, Micro, Inc., an S corporation, has a $93,000 AAA balance and a $15,000 AE&P balance. During the year, Micro distributed $150,000 to Mike.

Because the corporation distributed an amount in excess of the AAA and AE&P, it must file Form 5452. However, the instructions to the form say that an S corporation "should file this form only with respect to distributions made under Section 1368(c)(3)" (i.e., distributions made after the AAA and AE&P have been distributed). Evidently, distributions of AAA and PTI are not reported on the form. Micro should report a distribution of $57,000 ($150,000-$93,000) on Form 5452. Of the $57,000, $15,000 is a distribution of AE&P; $42,000 is a distribution from other than AE&P.

Micro will not be required to file Form 5452 in later years, because it has no AE&P and, thus, could not make a distribution under Sec. 1368(c)(3).The exhibit on p. 777 illustrates these facts.

Had Micro distributed an amount less than the combined AAA and AE&P balances; or if it did not have AE&P, evidently, it would not be required to file the form.

Practice note: As was stated, corporations with AE&P must report certain distributions on Form 5452. Because AE&P is not generated by an S corporation, only an S corporation that was formerly a C corporation (or had a C corporation with AE&P merged into it) must file Form 5452. However, if the S election terminates, distributions of AAA during the post-termination transition period (PTTP) are reported on Form 5452.

The form instructions also indicate that distributions of AAA during the PTTP must be reported on Form 5452.

Editor's note: This case study has been adapted from PIC Tax Planning Guide-S Corporations, 18th Edition, by Andrew R. Biebl, Gregory B. McKeen, George M. Carefoot and James A. Keller, published by Practitioners Publishing Company, Ft. Worth, TX, 2004 ((800) 323-8724;

Albert B. Ellentuck, Esq.

Of Counsel

King & Nordlinger, L.L.P.

Arlington, VA
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Author:Ellentuck, Albert B.
Publication:The Tax Adviser
Date:Dec 1, 2004
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