Property Distributions of Subchapter S Corporations: Regulation 1.1373-1(e) (2) Allocations Not Always Necessary.

Abstract This article informs that there is often a great deal of difficulty in determining the tax consequences of a property distribution in the hands of the shareholders of a Subchapter S corporation. Much of the difficulty is attributable to the manner in which the current earnings and profits (CE&P) of the corporation are allocated to the property distribution. These allocations are employed only for purposes of determining the tax status of the distribution in the hands of the shareholders. These allocations are not made at the corporate level. At the corporate level, all actual distributions are charged first to the corporation's CE&P, once CE&P are exhausted, any remainder is charged against the accumulated earnings and profits of the corporation. The tax consequences surrounding a property distribution by a Subchapter S corporation are often difficult to determine. These allocations are made only for purposes of determining the tax consequences to the shareholder of the corporation. From the standpoint of the distributing corporation, most of the regular SubchapterC rules apply.