This article will help you:
- What is the Accumulated Adjustments Account?
- How to input Accumulated Adjustments Account information.
What is the Accumulated Adjustments Account?
The Accumulated Adjustments Account is used by S-Corporations to determine how shareholders must treat distributions of property from the S-Corporation. This is a snapshot of the cumulative balance of all separately stated items and non-separately stated items (ordinary) of the S-Corporation. Accumulated Adjustments Account adjustments are similar to how basis is handled for separately and non-separately stated items. However, it is calculated without considering any net negative adjustments such as excess losses and deductions over income and gain.
- Accumulated Adjustments Account is not affected by any transactions that occurred when it was a corporation (federal income tax.)
- Expense items that are not deductible by the S-Corporation decrease basis in stock and the Accumulated Adjustments Account.
- No adjustments are made to Accumulated Adjustments Account for tax-exempt income (which increases basis) or nondeductible expenses related to them (which reduces basis.) These types of adjustments are made to the Other Adjustment Account.
An S-Corporation's Accumulated Adjustments Account can be reduced below zero, however, the Accumulated Adjustments Account of an S-Corporation cannot be reduced below zero by distributions.
How to input Accumulated Adjustments Account information into ProConnect Tax.
- Go to the Input Return tab.
- On the left navigation menu, select Balance Sheet, M-1, M-2, M-3.
- Then select Schedule M-2
- Enter the applicable information under Accumulated Adjustments Account.
- Input for the Shareholder Undistributed Taxable Income (Schedule M-2), Accumulated Earnings and Profits (Schedule M-2), and Other Adjustments Account can be found here, as well.
The preparer must understand the ordering process for distributions related to Accumulated Adjustments Account, Other Adjustment Account, and Previously Taxed Income, as this determination and analysis is outside the scope of the program and our support function. If additional information is required regarding the Accumulated Adjustments Account information, review the instructions for form 1120-S.
