S Corporations: Eligibility, Income, AAA & Basis | CPA REG Foundations

S corporation questions on REG test whether you can determine whether an entity qualifies for S status, classify pass-through items correctly, track the accumulated adjustments account, and calculate shareholder stock and debt basis. In this CPA REG Foundations lesson, you’ll learn the core S corporation rules for eligibility and election, ordinary business income versus separately stated items, Schedule K-1 reporting, AAA, shareholder distributions, stock basis, debt basis, and loss limitations. Use this S corporation framework: 1. Determine whether the corporation qualifies for S status 2. Identify ordinary business income and separately stated items 3. Track the accumulated adjustments account (AAA) 4. Calculate shareholder stock basis 5. Determine whether debt basis exists 6. Apply distributions and losses in the correct order Topics include: • S corporation eligibility • Eligible and prohibited shareholders • 100-shareholder limit • Family shareholder election • One class of stock requirement • Voting vs. economic rights • Form 2553 • Shareholder consent • S election timing • Revocation and termination • Passive investment income termination rule • Pass-through taxation • Form 1120S • Schedule K and Schedule K-1 • Ordinary business income • Separately stated items • Charitable contributions • Nondeductible expenses • Tax-exempt interest • Cash distributions • Accumulated adjustments account (AAA) • AAA vs. shareholder stock basis • Stock basis adjustments • Tax-exempt income and stock basis • Distribution taxability • Debt basis • Direct shareholder loans • Loan guarantees • Principal repayment • S corporation loss limitations • Stock basis before debt basis • At-risk and passive activity limitations • Suspended losses • Common REG Exam traps CHAPTERS 00:00 S Corporation Overview 00:42 Eligibility & Election 02:16 Revocation & Termination 02:54 Ordinary vs. Separately Stated Items 04:39 Accumulated Adjustments Account 05:28 AAA Calculation Example 06:37 Shareholder Stock Basis 07:23 Stock Basis Calculation Example 08:38 Debt Basis & Shareholder Loans 09:50 S Corporation Loss Limitations 10:38 Common REG Exam Traps Key concepts covered: • S corporation eligibility • Form 2553 • Pass-through taxation • Form 1120S • Schedule K-1 • Ordinary business income • Separately stated items • AAA • Stock basis • Debt basis • Distributions • Loss limitations The REG Blueprint separates S corporation questions into three major areas: Eligibility and election → Does the entity qualify for S corporation status? Ordinary business income and separately stated items → Which items remain in ordinary income and which must retain their character when passed through to shareholders? Basis of shareholder’s interest → How do operations, contributions, distributions, and shareholder loans affect stock and debt basis? A critical distinction is: AAA = entity-level account Stock basis = shareholder-level tax basis Tax-exempt income generally increases shareholder stock basis but does not increase AAA. For stock basis, remember the sequence: Beginning Basis Contributions Pass-Through Income − Distributions − Nondeductible Expenses − Losses and Deductions = Ending Stock Basis Stock basis cannot fall below zero. Debt basis generally requires a direct bona fide loan from the shareholder to the S corporation. Merely guaranteeing a bank loan does not create debt basis unless the shareholder actually makes payment under the guarantee. For losses: Stock Basis → Debt Basis → At-Risk Rules → Passive Activity Rules → Other Individual Limitations After watching, reinforce these concepts with related multiple-choice questions and task-based simulations in your CPA review course. Complete REG exam prep course:    • CPA BAR Exam Prep Course | Complete BAR St...   CPA Explained AI is an independent educational platform and is not affiliated with, endorsed by, or sponsored by the AICPA, NASBA, or any CPA review course provider. #CPAExam #CPAREG #SCorporation #ShareholderBasis