What is Post-termination transition period?
In short
After an S election ends, a post-termination transition period, generally one year, lets shareholders receive cash distributions tax-free out of the accumulated adjustments account and deduct suspended losses, both limited to their stock basis.
Key takeaways
- The period generally ends on the later of one year after termination or the due date of the last S corporation return, including extensions.
- Only cash distributions qualify for the special treatment.
- After the period, distributions are dividends to the extent of earnings and profits.
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
Which of the following would immediately terminate a corporation's S election?