Distributions that reduce the Accumulated Adjustments Account when the ending balance is negative
Distributions can reduce the accumulated adjustments account when the ending balance is negative. Adjustments take place in the following order:
- Income items increase the account, except for tax-exempt income.
- Deductible losses and expenses, nondeductible expenses, and expenses not related to tax-exempt income usually decrease the account.
- If the total decreases are greater than the total increases, the excess is a net negative adjustment.
- If the corporation has a net negative adjustment, ignore the negative adjustment into account.
- Property distributions decrease the account, except for dividend distributions from accumulated E and P. This doesn't apply if the corporation reduces accumulated E and P first.
- Net negative adjustments decrease the account.
