Subchapter S in Transition: A Reply and Extension.

Abstract Two comments are made to the subchapter S in transition. Both are concerned with the effects of a distribution from an S corporation when there is an Accumulated Adjustments Account and Previously Taxed Income. Both comments contain rationales with which the authors agree and they are willing to make limited amendments to some of their conclusions. They do not, however, find the prescriptions offered by the commentators compelling, nor are we satisfied that either comment adds any substantial clarity to their analysis of these statutes. This reply restates the points of each comment with which the authors agree and addresses those with which they disagree. The Internal Revenue Service position was not covered in their original article, nor in either of the comments. This response augments their original position that there are serious gaps and inconsistencies in the transition rules of Subchapter S. It may be pointed out that the principal flaw of their original article was a misleading impression of certainty in the results they obtained in two of their examples.