Reporting certain nondividend distributions on Form 5452.

• Author: Ellentuck, Albert B.

Corporations with accumulated earnings and profits (AE&P) must report nondividend (nontaxable) distributions on Form 5452, Corporate Report of Nondividend Distributions; thus, S corporations with AE&P appear to have to file Form 5452. However, the form instructions state that an S corporation files the form only if it made nondividend distributions under Sec. 1368(c)(3) (covering nontaxable distributions made after the accumulated adjustments account (AAA) and AE&P have been distributed).

Evidently, Form 5452 must be filed by an S corporation only in,the year it has no AAA or previously taxed income (PTI) balance, and makes distributions in excess of its AE&P balance. The form should be attached to the corporation's tax return, Form 1120S, U.S. Income Tax Return for an S Corporation. Copies of Forms 1099-DIV, Dividends and Distributions, sent to the shareholders, should also be attached to the form if there are 12 or fewer shareholders.

The form must be accompanied by a schedule showing a year-by-year calculation of AE&E An S corporation's AE&P generally does not increase and is decreased only in limited situations.

Example

Before considering distributions, Micro, Inc., an S corporation, has a $93,000 AAA balance and a $15,000 AE&P balance. During the year, Micro distributed $150,000 to Mike.

Because the corporation distributed an amount in excess of the AAA and AE&P, it must file Form 5452. However, the instructions to the form say that an S corporation "should file this form only with respect to distributions made under Section 1368(c)(3)" (i.e., distributions made after the AAA and AE&P have been distributed). Evidently, distributions of AAA and PTI are not reported on the form. Micro should report a distribution of $57,000 ($150,000-$93,000) on Form 5452. Of the $57,000, $15,000 is a...