Daniel is the sole shareholder in Helio, Inc., a calendar-year corporation. After operating as a C corporation for 5 years, Helio, Inc, elected S corporation status in 2015. At the beginning of 2021, Daniel had a stock basis in Helio of $100,000, an accumulated adjustments account (AAA) balance of $25,000, and accumulated earnings and profits of $15,000.

This year, Daniel receives a $50,000 distribution. Per his k-1 from Helio, Inc., Daniel has a $4,000 long-term capital gain and $10,000 of non-separately stated income.

1. If Daniel said, Im so happy that converted from being a C corporation to an S-corporationsince I know that I can get the $50,000 cash out of the business without tax. During the C corp days, the $50,000 would have been subject to a 21% tax. What is the response to Daniel?