What is Accumulated adjustments account?
In short
The accumulated adjustments account (AAA) tracks an S corporation's income that has been taxed to shareholders but not yet distributed. It decides how distributions are taxed when the corporation still has earnings and profits from its C corporation years.
Key takeaways
- Distributions come first from the account (tax-free up to stock basis), then from accumulated earnings and profits (taxable dividends), then from remaining basis.
- Losses can make the account negative, but distributions can't.
- An S corporation with no earnings and profits from C corporation years treats distributions as a return of basis.
Where it's tested
REG: S Corporation Taxation — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
The accumulated adjustments account (AAA) of an S corporation is used primarily to: