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Reporting certain nondividend distributions on Form 5452.



Corporations with accumulated ac·cu·mu·late  
v. ac·cu·mu·lat·ed, ac·cu·mu·lat·ing, ac·cu·mu·lates

v.tr.
To gather or pile up; amass. See Synonyms at gather.

v.intr.
To mount up; increase.
 earnings and profits (AE&P) must report nondividend (nontaxable adj. 1. Not subject to taxation; - of goods imported into a country or sold at retail outlets; as, most laws imposing sales taxes make food nontaxable s>. Opposite of taxable nt>.

Adj. 1.
) 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 AAA: see American Automobile Association.


(Triple A) A common single-cell battery used in a myriad of electronic devices of all variety. Like its double A (AA) cousin, it provides 1.5 volts of DC power. When used in series, the voltage is multiplied.
) 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 PTI - Portable Tool Interface ) 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.

Example

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 PTTP Power to the People
PTTP USPACOM Tactics Techniques & Procedures
) 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 Editor's Note (foaled in 1993 in Kentucky) is an American thoroughbred Stallion racehorse. He was sired by 1992 U.S. Champion 2 YO Colt Forty Niner, who in turn was a son of Champion sire Mr. Prospector and out of the mare, Beware Of The Cat.

Trained by D.
: This case study has been adapted from PIC (1) (Programmable Interrupt Controller) An Intel 8259A chip that controls interrupts. Starting with the 286-based AT, there are two PICs in a PC, providing a total of 15 usable IRQs.  Tax Planning Tax planning

Devising strategies throughout the year in order to minimize tax liability, for example, by choosing a tax filing status that is most beneficial to the taxpayer.
 Guide-S Corporations, 18th Edition, by Andrew R. Biebl, Gregory B. McKeen, George George, river, c.345 mi (560 km) long, rising in a lake on the Quebec-Labrador boundary, E Canada. It flows N through Indian Lake (125 sq mi/324 sq km) to Ungava Bay (an arm of Hudson Strait).  M. Carefoot and James A. Keller, published by Practitioners Publishing Company, Ft. Worth, TX, 2004 ((800) 323-8724; ppc.thomson.com).

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
Words:538
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