IRS Guidance on Redemption of Stock

Guidance on the application of subchapters C and S of chapter 1 of subtitle A of the Internal Revenue Code (Code) has been made available to tax and accounting professionals. The revenue ruling, 2019-13 (available here), provides an answer to:

If, during a former S corporation’s post-termination transition period, the corporation distributes cash in redemption of a shareholder’s stock and the distribution is characterized as a distribution under § 301 of the Internal Revenue Code (Code), should the corporation reduce its accumulated adjustments account (AAA) pursuant to § 1368 of the Code?

According to the new guidance, RR-19-13 holds that—to the extent a corporation makes such a cash distribution that is subject to section 301 of the Code by reason of section 302(d) of the Code—the cash distribution should reduce the corporation’s accumulated adjustments account (within the meaning of section 1368(e) of the Code) to the extent of the proceeds of the redemption according to section 1368 of the Code.

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