3. McGuiness, Inc., is a calendar year S corporation. Its AAA balance is zero.

Answer Questions A and B. Show all work.

1. McGuiness holds $90,000 of AEP. Nigel, the sole shareholder, has an adjusted basis of $80,000 in his stock. Determine the tax aspects if a $90,000 salary is paid to Nigel. Ignore the 20% QBI deduction. (character of income, effect on corporation income passed to Nigel, stock basis, carryovers)

2. Same as part (a), except that McGuiness pays Nigel a $90,000 cash distribution from AEP. (character of income, effect on corporation income passed to Nigel, stock basis, AEP)