S Corporation AAA vs Accumulated Earnings and Profits
AAA tracks S-corporation tax history; accumulated E&P generally reflects prior C-corporation history.
AAA
The accumulated adjustments account generally tracks undistributed S-corporation income and certain adjustments for tax purposes.
Accumulated E&P
Accumulated earnings and profits can remain from years when the corporation was taxed as a C corporation.
Distribution importance
The presence of accumulated E&P can change the ordering and tax character of S-corporation distributions.
Exam strategy
Ask whether the balance came from S years or prior C years before analyzing the distribution.
The takeaway
AAA is primarily an S-corporation account, while accumulated E&P usually reflects prior C-corporation earnings and can change distribution treatment.
Related Summit resources
FAQ
What is the key distinction?
AAA is primarily an S-corporation account, while accumulated E&P usually reflects prior C-corporation earnings and can change distribution treatment.
What should I identify first?
AAA tracks S-corporation tax history; accumulated E&P generally reflects prior C-corporation history.
Why is this tested?
Understand the difference between the accumulated adjustments account and accumulated earnings and profits in an S corporation.