Hector Formed H Corporation as a C Corporation at the Beginning

question 55

Essay

Hector formed H Corporation as a C corporation at the beginning of 2018. Hector was the sole shareholder of H Corporation. H Corp. reported 2018 taxable income (and earnings and profits) of $200,000. At the beginning of 2019, H Corp. elected S corporation status. During 2019, H Corp. had a rough year, reporting an ordinary business loss of $70,000, $4,000 of dividend income, and $3,000 of interest income. H Corp. also distributed $15,000 to Hector. What is the amount and character of gain/income Hector must recognize on the distribution (if any)? What is the balance in H Corporation's accumulated adjustments account (AAA) at the end of 2019?

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Definitions:

Solipsism

The philosophical idea that only one's own mind is sure to exist, and the external world, as well as other minds, might not exist outside one's own perceptions.

Paradoxical

Something that appears contradictory or opposed to common sense yet might be true upon closer examination.

Selves

The individual identities or personalities that constitute the self-awareness or essence of a person.

Society

A group of individuals involved in persistent social interaction, or a large social grouping sharing the same geographical or social territory, typically subject to the same political authority and dominant cultural expectations.