§ 105-131.6. Distributions. - North Carolina Statutes

§105‑131.6.  Distributions.

(a)        Subject to theprovisions of subsection (c) of this section, a distribution made by an SCorporation with respect to its stock to a resident shareholder is taxable tothe shareholder as provided in Parts 2 and 3 of this Article to the extent thatthe distribution is characterized as a dividend or as gain from the sale orexchange of property pursuant to section 1368 of the Code.

(b)        Subject to theprovisions of subsection (c) of this section, any distribution of money made bya corporation with respect to its stock to a resident shareholder during a post‑terminationtransition period is not taxable to the shareholder as provided in Parts 2 and3 of this Article to the extent the distribution is applied against and reducesthe adjusted basis of the stock of the shareholder in accordance with section1371(e) of the Code.

(c)        In applyingsections 1368 and 1371(e) of the Code to any distribution referred to in thissection:

(1)        The term"adjusted basis of the stock" means the adjusted basis of theshareholder's stock as determined under G.S. 105‑131.3.

(2)        The accumulatedadjustments account maintained for each resident shareholder must be equal to,and adjusted in the same manner as, the corporation's accumulated adjustmentsaccount defined in section 1368(e)(1)(A) of the Code, except that:

a.         The accumulatedadjustments account shall be modified in the manner provided in G.S. 105‑131.3(b)(1).

b.         The amount of thecorporation's federal accumulated adjustments account that existed on the daythis State began to measure the S Corporation shareholders' income by referenceto the income of the S Corporation is ignored and is treated for purposes ofthis Article as additional accumulated earnings and profits of the corporation.(1987 (Reg. Sess., 1988), c. 1089, s. 1; 1989, c. 728, ss. 1.33, 1.35;1998‑98, s. 6.)