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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
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Experience:  10 years experience
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Background: I started a S-Corporation in 1990. During the

Customer Question

Background: I started a S-Corporation in 1990. During the years after 2000 I gave shares to my four adult children and another employee. At the end of 2015, I sold the remaining shares to the five shareholders.
Question: At the time that I gave a share to the present shareholders, did the retained earnings at the time of the gift remain with me.
Example 1: 2004 I had 100% of the shares and the retained earnings was $100,000.00. I gave three shares to my child. Did my retained earnings remain at $100,000.00 or did it now become $97,000.00 and the child immediately had $3,000.00 in retained earnings.
Example 2: 2004 I had 100% of the shares and the retained earnings was $100,000.00. I gave three shares to my child. In year 2005 the company retained earnings increase by another $100,000.00. Would my retained earnings at the end of 2005 be $100,000.00 plus 97% of 2005 retained earnings or a total of $197,000.00 and the child would then have retained earnings of $3,000.00.
Submitted: 2 months ago.
Category: Tax
Expert:  ABC Accounting Group replied 2 months ago.

Hi. In both scenerio's, it would not affect Retained Earnings. Retained Earnings would remain the same.

Customer: replied 2 months ago.
Someone owns the retained earnings, either I retained the earnings at the time of the gift and the recipient's retained earnings started at that point or the retained earnings were also given when the shares were transferred to the recipient. Your answer says the answer is both ways, which is it?
Expert:  ABC Accounting Group replied 2 months ago.

The S-Corp's Retained Earnings would remain the same. Your Retained Earnings would change by the amount you had gifted.

Customer: replied 2 months ago.
Still did not get the answer, i want to close this account. Not satisfied.