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Level 132

Corporations: Earnings & Profits & Dividend Distri

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Accumulated earnings and profits
Net undistributed tax-basis earnings of a corporation aggregated from March 1, 1913, to the end of the prior tax year. Used to determine the amount of dividend income associated with a distribution to shareholders.…
Constructive dividend
A taxable benefit derived by a shareholder from his or her corporation that is not actually initiated by the board of directors as a dividend. Examples include unreasonable compensation, excessive rent payments, bargain purchase…
Current earnings and profits
Net tax-basis earnings of a corporation aggregated during the current tax year. A corporate distribution is deemed to be first from the entity's current earnings and profits and then from accumulated earnings and profits. Sharehol…
Earnings and profits (E & P)
Measures the economic capacity of a corporation to make a distribution to shareholders that is not a return of capital. Such a distribution results in dividend income to the shareholders to the extent of…
Property dividend
A dividend consisting of in-kind (noncash) assets of the payor, measured by the fair market value of the property on the date of distribution. Distribution of in-kind property causes the distributing C or S corpora…
Qualified dividends
Distributions made by domestic (and certain non-U.S.) corporations to noncorporate shareholders that are subject to tax at the same rates as those applicable to net long-term capital gains. The dividend must be paid ou…
Stock dividend
A dividend consisting of stock of the payor. Not taxable if a pro rata distribution of stock or stock rights on common stock. However, some stock dividends are taxable. § 305.
Stock rights
Assets that convey to the holder the power to purchase corporate stock at a specified price, often for a limited period of time. Stock rights received may be taxed as a distribution of earnings…
Unreasonable compensation
A deduction is allowed for reasonable salaries or other compensation for personal services actually rendered. To the extent compensation is excessive (unreasonable), the distribution could be treated as a dividend, such that no deductio…