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BK-CPA
BK-CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 933
Experience:  Owner of a CPA firm
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My accountant entered an amount for shareholders undistributed

Customer Question

My accountant entered an amount for shareholders' undistributed taxable income previously taxed. how is that calculated?
Submitted: 7 years ago.
Category: Tax
Expert:  BK-CPA replied 7 years ago.

You must be talking about an S-Corp return where the company has been around for a while.

 

See the instructions, starting page 37:

 

http://www.irs.gov/pub/irs-pdf/i1120s.pdf

 

"The shareholders' undistributed taxable income previously taxed account, also called previously taxed income (PTI), is maintained only if the corporation had a balance in this account at the start of its 2009 tax year (page 38)."

 

A distribution should have been made under Section 1375(d), assuming the Corp is continuing its existence, before this amount should change.

 

"A distribution from the PTI account is tax free to the extent of a shareholder's basis in his or her stock in the corporation."

 

 

 

Thank you for your question.

 

 

Customer: replied 7 years ago.
well i see in the 2008 he entered a large amt in schedule m-2 c7 but i don't know how that was figured and i'm reading but i'm lost
Expert:  BK-CPA replied 7 years ago.

The account should only decrease.

 

It doesn't sound like your return is being prepared correctly.

 

I'll show you the 2008 instructions now:

 

http://www.irs.ustreas.gov/pub/irs-prior/i1120s--2008.pdf

 

"The shareholders' undistributed taxable income previously taxed account, also called previously taxed income (PTI), is maintained only if the corporation had a balance in this account at the start of its 2008 tax year. If there is a beginning balance for the 2008 tax year, no adjustments are made to the account except to reduce the account for distributions made under section 1375(d) (as in effect before the enactment of the Subchapter S Revision Act of 1982)... (page 37)."

 

 

Hmmm....?

Customer: replied 7 years ago.

well i'm working on 2009 and i don't have a number there and that's why i wanted to know if i need to put an amount for 2009 m2c7

because i left it blank

Expert:  BK-CPA replied 7 years ago.

It is possible to have distributed all of your PTI balance in 2008, in which case you wouldn't have a 2009 beginning balance, but without looking at your return, I would not know. This equity that you do want to account for correctly so that you don't end up paying too much in tax on distributions or upon the eventual sale of your company, etc.