chapter_5_notes - 5-1Chapter 5 Corporations: Earnings and...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 5-1Chapter 5 Corporations: Earnings and Profits & Dividend Distributions (2012) updated: August. 9, 2011 Learning Objectives: Explain how current E & P is computed Explain the difference between current and accumulated E & P Understand the tax consequences of cash distributions oto the shareholder, and oto the corporation Understand the tax consequences of property distributions oto the shareholder, and oto the corporation Understand the reason for & the tax treatment of constructive dividends Determine the tax consequences of stock dividends and the distribution of stock rights I. Tax Treatment of Corporate Distributions A. From the shareholders perspective does the distribution received result in 1. taxable dividend income (furthermore, is it a qualified dividend) 2. nontaxable recovery of capital, or 3. a capital gain? Note: Under Sec. 316 distributions by a corporation to its shareholders are presumed to be dividends unless can prove otherwise. B. From the corporations perspective does the distribution result in 1. a tax deduction (usually NO, which results in double taxation), and 2. the recognition of any gain or loss? C. There are two types of corporate distributions 1. nonliquidating distributions (covered in chapter 5) 2. liquidating distributions (will be covered in chapter 6) 5-2D. Dividend distributions from E & P (Sec. 316) 1. distributions of cash & property from a corporations earnings and profits(often referred to as E & P) are usually taxable to the shareholder 2. for individual shareholders taxable dividends are treated as either ordinary income taxed at the marginal rate, or qualified dividends taxed at the preferential long-term capital gains rate of 15%/0% 3. for corporate shareholders taxable dividends are eligible for the 70 or 80-percent dividends received deduction 4. property distributions include: securities and other assets 5. property does not include stock, or stock rights of the corporation 6. nonliquidating dividends are not tax deductible by the corporation E. Dividend distributions in excess of E & P 1. distributions are nontaxable to extent of shareholders basis (i.e., a return of capital) 2. shareholders basis in stock may be reduced to zero 3. distributions in excess of shareholders basis are recognized as a capital gain 5-3II. Earnings and Profits (Sec. 312) A. E & P is separated between 1. current E & P generated in the current year 2. accumulated E & P generated in all prior years (since February 28, 1913) B. Ordering 1. distributions are deemed to come first from current E & P 2. if current E & P is exhausted, then distributions are deemed to come from accumulated E & P 3. distributions in excess of current and accumulated E & P are considered a return of capital to the extent of stock basis 4. distributions in excess of stock basis are treated as a capital gain III. Computing Current and Accumulated E & P A. E & P represents A....
View Full Document

Page1 / 15

chapter_5_notes - 5-1Chapter 5 Corporations: Earnings and...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online