I have S-corp distributions in excess of current earnings where total equity = <0. This entity never was C-corp, so no E&P. Since the distributions exceeded basis, the portion in excess of basis needs to be reported as capital gain. How to do this?
Schedule D of the 1040. On the 1120S, the distributions are just shown as distributions.
I agree with the original answer, however, you still need to balance the balance sheet. Do you enter the excess distribution as an adjustment to shareholder equity on line 25 of schedule L or do you override retained earnings to show a negative retained earnings in the amount of the excess distribution?
I'm not sure what the "Other Adjustments Account" is supposed to be, but you might go thru a few gyrations to force part of the distribution to come from "OAA" and then the sum of "AAA" and "OAA" bottom lines might equal "retained earnings" (whether that's a positive balance or a deficit balance).
The Balance Sheet would show negative retained earnings. The AAA account would be limited to $0. And the distributions would appear in full on page 3 and to the extent of AAA on page 4.
