In certain circumstances, an S-corporation may have an accumulated adjustments account (AAA).

a). Explain (in one or two sentences) why some S-corporations need to keep track of AAA and other S-corporations do not.

Small Corporation (an S-corporation) has AAA of $16,000 and AEP of $8,000 . Small Corp. distributes $20,000 of cash to its Jamie, the sole shareholder. Jamies basis in his S Corp stock before the distribution is $40,000. Jamie is in the 37% tax bracket. b). What are the tax consequences to Jamie as a result of this distribution?

c). What is ending balance in AAA and AEP. What is Jamies ending stock basis?