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1368(b)(1), (c)(1); Cameron v. Commissioner, supra at 384.
Section 1371 provides, for taxable years after 1982, that the
accumulated earnings and profits that an S corporation carries
over from preelection years when it was a C corporation,
generally are not adjusted for the taxable years during which the
S corporation election is in effect. Sec. 1371(c)(1); Cameron v.
Commissioner, supra.
Section 1368 sets out the ordering rules for the tax
treatment of S corporation distributions. Section 1368(c)(1)
generally provides that an S corporation with earnings and
profits must treat its distributions as being first out of the
accumulated adjustments account, tax free to the extent of the
shareholder's adjusted basis in the stock.3 If the amount of the
3Sec. 1368(c)(1) provides:
(c) S Corporation Having Earnings and Profits.--In
the case of a distribution described in subsection (a)
by an S corporation which has accumulated earnings and
profits--
(1) Accumulated adjustments account.--
That portion of the distribution which does
not exceed the accumulated adjustments
account shall be treated in the manner
provided by subsection (b).
Sec. 1368(b)(1) provides:
(b) S Corporation Having No Earnings and
Profits.--In the case of a distribution described in
subsection (a) by an S corporation which has no
(continued...)
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