J formed R Corporation in 1986. The corporation operated as a C corporation from 1987 until 2006, when it elected to be taxed as an S corporation. At the beginning of the current year, J had a basis in his stock of $100,000. The corporation’s balance in the AAA at the beginning of the current year was $143,000. R’s records for the current year reveal the following information:

Sales	$300,000
Cost of goods sold	(120,000)
Miscellaneous operating expenses	50,000
Salary to J	40,000
Nondeductible portion of entertainment	4,000
Tax-exempt interest income	13,000
Expenses related to tax-exempt interest income	3,000
Capital gain	7,000
Capital loss	(2,000)
Charitable contribution	5,000
Cash distribution to J	10,000

The corporation also had AE&P from C years of $4,000.

Compute J’s basis in his stock and the corporation’s balance in the AAA as of the end of the taxable year. Assume J is the sole shareholder.

2. Assume the same facts as problem 1 above. Explain the tax treatment to J if he receives the following distributions during the year:

1. $100,000
2. $220,000
3. $260,000