[§235-127]  Distributions.  (a)  Subject
to subsection (c), a distribution made by an S corporation with respect to its
stock to a resident shareholder shall be taken into account by the shareholder
for purposes of section 235-4 and shall be taxable under section 235-51 to the
extent that the distribution is treated as a dividend or as gain from the sale
or exchange of property pursuant to section 1368 of the Internal Revenue Code.



(b)  Subject to subsection (c), a distribution
of money made by a corporation with respect to its stock to a resident
shareholder during a post-termination transition period shall not be taken into
account by the shareholder for purposes of section 235-4 to the extent the
distribution is applied against and reduces the adjusted basis of the stock of
the shareholder in accordance with section 1371(e) of the Internal Revenue
Code.



(c)  In applying sections 1368 and 1371(e) of
the Internal Revenue Code to any distribution referred to in subsection (a) or
(b):



(1)  The term "adjusted basis of the stock"
means the adjusted basis of the shareholder's stock as determined under section
235-124; and



(2)  The accumulated adjustments account for this
State shall be equal to, and shall be adjusted in the same manner as, the S
corporation's accumulated adjustments account defined in section 1368(e)(1)(A)
of the Internal Revenue Code, except that the account shall also be adjusted by
any modifications required to be made pursuant to section 235-123(a). [L 1990,
c 16, pt of §1]