1. Pages, Inc. (an S corporation), is owned by Martin and Steve. They share in the income and loss of the corporation on a 50/50 basis. In Year 1, the corporation reported $90,000 in ordinary income and $12,000 of tax-exempt income. Each owners basis in his stock is $25,000. The corporation was previously a C corporation, and $30,000 in E&P remained on the books at the beginning of the year. Martin and Steve each received an $80,000 distribution from the corporation on December 15, Year 1. What is the character of the distribution to Martin [assume the accumulated adjustment account (AAA) and other adjustments account (OAA) are zero on January 1, Year 1?

2. Distributions made by an S corporation result in the recognition of gross income only when made out of accumulated earnings and profits, or when the sum of the amount of cash and the fair market value of the property distributed to a shareholder exceeds the basis of his/her stock investment in the corporation. true or false - explain you ranswer!

3. For any tax year, an S corporation can elect its distributions as coming first from its C corporation accumulated earnings and profits if all shareholders who receive a distribution during the tax year consent to the election. This election remains in effect for all tax years thereafter. True or False - explain your answer