Section 2: 30–40%T6

S Corporation Compliance and Basis

Exam insight

S corporations are pass-through entities, so TCP tests eligibility, the per-share per-day way of splitting income, and the strict stock-then-debt basis order that limits loss deductions. How distributions interact with AAA and C-corporation E&P, plus the built-in gains tax, come up again and again and carry a lot of points.

What AICPA wants you to know

1State the S corporation eligibility requirements and the mechanics and timing of the election.
2Allocate separately and non-separately stated items using the per-share, per-day method.
3Adjust shareholder stock basis and apply the stock-then-debt loss limitation ordering.
4Track the Accumulated Adjustments Account (AAA) and characterize distributions when C-corporation E&P exists.
5Compute the built-in gains tax on appreciated assets held at conversion from a C corporation.

Patterns in this topic

The exam re-skins the same archetypes. Recognize these here, then drill them in the Pattern Lab.

The S Corporation PlanKeep S status clean, then run the mechanics in order: increase basis before decreasing, deduct losses to stock then debt, and route distributions through AAA.

Exam tip

Study smarter: before you expand each card, cover the screen and try to recall what the concept means from its title alone. Retrieving it from memory builds the recall the exam actually tests, and it beats re-reading.