View all text of Part II [§ 1366 - § 1368]
§ 1368. Distributions
(a) General rule
(b) S corporation having no earnings and profits
In the case of a distribution described in subsection (a) by an S corporation which has no accumulated earnings and profits—
(1) Amount applied against basis
(2) Amount in excess of basis
(c) S corporation having earnings and profits
In the case of a distribution described in subsection (a) by an S corporation which has accumulated earnings and profits—
(1) Accumulated adjustments account
(2) Dividend
(3) Treatment of remainder
Except to the extent provided in regulations, if the distributions during the taxable year exceed the amount in the accumulated adjustments account at the close of the taxable year, for purposes of this subsection, the balance of such account shall be allocated among such distributions in proportion to their respective sizes.
(d) Certain adjustments taken into account
Subsections (b) and (c) shall be applied by taking into account (to the extent proper)—
(1) the adjustments to the basis of the shareholder’s stock described in section 1367, and
(2) the adjustments to the accumulated adjustments account which are required by subsection (e)(1).
In the case of any distribution made during any taxable year, the adjusted basis of the stock shall be determined with regard to the adjustments provided in paragraph (1) of section 1367(a) for the taxable year.
(e) Definitions and special rules
For purposes of this section—
(1) Accumulated adjustments account
(A) In general
(B) Amount of adjustment in the case of redemptions
(C) Net loss for year disregarded
(i) In general
(ii) Net negative adjustment
For purposes of clause (i), the term “net negative adjustment” means, with respect to any taxable year, the excess (if any) of—
(I) the reductions in the account for the taxable year (other than for distributions), over(II) the increases in such account for such taxable year.(2) S period
(3) Election to distribute earnings first
(A) In general
(B) Affected shareholder
(f) Restricted bank director stock
If a director receives a distribution (not in part or full payment in exchange for stock) from an S corporation with respect to any restricted bank director stock (as defined in section 1361(f)), the amount of such distribution—
(1) shall be includible in gross income of the director, and
(2) shall be deductible by the corporation for the taxable year of such corporation in which or with which ends the taxable year in which such amount is included in the gross income of the director.
(Added Pub. L. 97–354, § 2, Oct. 19, 1982, 96 Stat. 1680; amended Pub. L. 97–448, title III, § 305(d)(2), Jan. 12, 1983, 96 Stat. 2399; Pub. L. 98–369, div. A, title VII, § 721(r), July 18, 1984, 98 Stat. 970; Pub. L. 99–514, title XVIII, § 1879(m)(1)(B), Oct. 22, 1986, 100 Stat. 2910; Pub. L. 104–188, title I, § 1309(a)(2)–(c), Aug. 20, 1996, 110 Stat. 1783; Pub. L. 110–28, title VIII, § 8232(b), May 25, 2007, 121 Stat. 197; Pub. L. 115–141, div. U, title IV, § 401(a)(193), Mar. 23, 2018, 132 Stat. 1193.)