common_E&P_adjustments - Earnings and Profits...

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Earnings and Profits (E&P) A. What is E&P (earning and profits)? 1. E&P represents the upper limit on the amount of dividend income a shareholder must recognize on corporate distributions it represents the corporation's economic income (i.e. their “economic ability” to pay dividends) without impairing its capital 2. E & P is computed on an annual basis at the end of the tax year (without reduction for any distributions made during the year) 3. E & P is NOT defined in the tax code – it is similar to retained earnings (a financial accounting concept) but it is not the same B. The formula to compute current E & P Taxable income (computed at end of tax year) + Additions to taxable income Subtractions from taxable income +/- Timing adjustments +/- Accounting method adjustments = Current E & P (current E & P deficit) C. Some common E&P adjustments 1. Additions to taxable income a) tax-exempt (muni-bond) interest b) federal income tax refunds c) excluded life insurance proceeds where corporation is beneficiary
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This note was uploaded on 09/09/2011 for the course TAX 6845 taught by Professor Kelliher,c during the Fall '08 term at University of Central Florida.

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common_E&P_adjustments - Earnings and Profits...

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