- 19 - additional contributions to Diamond made after the issuance of its 10,000 shares constituted contributions to capital which, while increasing the basis of the stock, are treated as "allocable to stock which is not section 1244 stock." Sec. 1244(d)(1)(B). Dividend Income In March 1987, Resthaven merged with its parent and converted from a C corporation to an S corporation. The S corporation included deferred gross profit of the former C corporation in its income over the next 4 years, 1987 through 1990, because Resthaven changed from the installment method to the cash method of accounting. See sec. 481; sec. 1.1374-4(h), Income Tax Regs. The gross profit of the former C corporation constituted earnings and profits to Resthaven. Respondent determined that Resthaven had made expenditures for the personal benefit of petitioner and members of his family, and, therefore, petitioners realized dividend income in 1987, 1988, and 1989 in the amounts of $106,212, $66,423, and $48,623, respectively. Section 1368(c)(2) provides that distributions from an S corporation with accumulated earnings and profits are dividends to the extent that such distributions exceed the corporation's accumulated adjustments account (AAA) and do not exceed earningsPage: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Next
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