They also include provisions on the timing of basis adjustments, basis computations during a loss year, computation of individual stock basis and the categorization of debt as basis.
The consequences of distributions to the shareholders and the corporation are discussed further.
a corporation (hereafter in this subsection referred to as the “corporate partner”) receives a distribution from a partnership of stock in another corporation (hereafter in this subsection referred to as the “distributed corporation”),then an amount equal to such excess shall be applied to reduce (in accordance with subsection (c)) the basis of property held by the distributed corporation at such time (or, if the corporate partner does not control the distributed corporation at such time, at the time the corporate partner first has such control).
The amount of the reduction under paragraph (1) shall not exceed the amount by which the sum of the aggregate adjusted bases of the property and the amount of money of the distributed corporation exceeds the corporate partner’s adjusted basis in the stock of the distributed corporation.
Most distributions of mostcorporations fall well within this category of taxable "dividends" andhence are taxed as ordinary income to the shareholder, subject to the exclusion of § 116 and the 4 percent dividends received credit of§ 34 if the shareholder is an individual or to the 85 percent dividendsreceived deduction of § 243 if the shareholder is a corporation.
Tothe extent that a distribution by a corporation is not covered by currentor post-1913 earnings and profits, however, it is treated by§ 301(c)(2) as a return of capital to the shareholder, to be appliedagainst and in reduction of the adjusted basis of his stock.
The basis to the distributee partner of property to which paragraph (1) is applicable shall not exceed the adjusted basis of such partner’s interest in the partnership reduced by any money distributed in the same transaction. Some are clearly wrong, but we have made no attempt to correct them, as we have no way guess correctly in all cases, and do not wish to add to the confusion. This list is taken from the Parallel Table of Authorities and Rules provided by GPO [Government Printing Office].The regulations being proposed under IRC Secs 13 provide the particulars of adjustments to stock basis and distributions to S corporation stockholders.The proposals list an ordering rule for the adjustment, either increases or decreases, of stock basis.Shareholders in an S corporation must keep careful track of their tax basis.The amount of the tax basis determines the tax treatment of such items as flow-through losses and corporate distributions.
94–455 struck out “or his delegate” after “Secretary”.