33 yr old C Corp changed to S Corp in 1998 with minor increased Asset revaluation of several apartment houses owned some 25 years. All K-1 distributed rental income is passive. Shareholders are senior citizens who want to distribute part of the much appreciated marketvalue equity without selling apt houses but, per IRS rule to avoid big tax bite, should wait 10 years after S conversion before doing so. Attempted to withdraw such equity in 2000 thru bank refinancing one apt house but, to our chagrin, the distributed bank proceeds are taxed as retained earnings dividend. With 2001 retained earnings now a negative figure, could we refinace another apt house in future with proceeds declared as untaxed'return of capital' instead of a tax 'dividend'?
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