Determining the Tax Treatment of S Corporation Distributions

In this practical and insightful ENGAGE 2025 session rebroadcast, Tony Nitti explores one of the most common areas where tax practitioners stumble: determining the correct tax treatment of an S corporation’s distributions.

Rather than getting lost in complexity, he demonstrates how to “keep it simple” by focusing on the essential elements that drive outcomes:

• Shareholder basis
• Earnings and profits (E&P)
• The accumulated adjustments account (AAA)

Tony explains how these attributes interact, clarifying:

• The shareholder’s stock basis
• The role of AAA and E&P in shaping consequences
• The three possible tax outcomes that can result from a distribution

He also addresses the unique elections available to S corporations that can change the ordering and overall result of distributions.

With clear explanations and a real-world perspective, this session equips practitioners to avoid common errors, deliver accurate advice, and confidently guide clients through the tax implications of S corporation distributions.

Key Topics

• S corporations
• S corporations distributions
• Tax consequences

Learning Outcomes

• Recognize the three possible tax consequences that can arise when an S corporation makes a distribution to a shareholder.
• Identify the role a shareholder’s stock basis plays in determining the tax consequences of an S corporation’s distributions.
• Identify the role an S corporation’s AAA and E&P play in determining the tax consequences of an S corporation’s distributions.
• Distinguish three elections that allow an S corporation to change the ordering rule and outcome of its distributions.

Who Will Benefit

Tax and accounting professionals, CPAs