Rev Rul 2019-13 provides guidance on how redemption distributions affect AAA during the PTTP

The IRS has issued Rev Rul 2019-13 that provides guidance on the reduction of AAA when a former S corporation distributes cash in redemption of a shareholder’s stock during the corporation’s post-termination transition period (PTTP).

If, during a former S corporation's PTTP, the corporation distributes cash in redemption of a shareholder's stock, which is characterized as a distribution subject to IRC §301, the corporation should reduce its AAA to the extent of the proceeds of the redemption pursuant to IRC §1368. The remaining amount of the distribution is characterized as a dividend under IRC §301(c)(1).