mdfabs

Hi,

I bought a 50% stake in an S corporation in June of last year. My partner started the company in April.

When we filed our K-1, our tax responsibility on the income of the company was prorated based on the amount of time we owned our shares, so my partner's tax basis was higher than mine at the end of 2005.

In 2006, we decided to take a distribution of last year's profit. We took our distributions based on the profits as reported in last year's K-1 (let's say, for argument's sake, my distribution was $1200, and my partner's was $1800).

We're now preparing our taxes for this year, and I'm getting conflicting information from 2 accountants. One says the way we did our distributions is fine. The other says that because we were 50% owners at the time of the distribution, we should have gotten the same amount. Does anybody have any idea who is right? Should we be taking distributions based on our K-1s, or should we be taking them based on our ownership stake at the time of the distribution?

Any insight you can offer would be appreciated.

Thanks.