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Nonliquidating Distributions

Nonliquidating Distributions - I Nonliquidating...

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I. Nonliquidating Distributions A. Overview 1. Generally talking about dividends – However, EVERY distribution is NOT a dividend a) If you are getting your own investment (Money) Back – it is a return on capital 2. Dividend is when a corp is distributing profits from earnings 3. If corporation is returning capital then there is NO tax, However, SH received a reduction in his basis B. Dividends 1. 316 Definition: The term dividend means any distribution of property (property is money, securities, and any other property other than stock in corp that is making the distribution) made by a corporation to its SH a) out of E&P accumulated after Feb 28,1913 OR b) out of E&P of the taxable year (computed as of the close of taxable yr w/o diminution by reason of any distributions made during the taxable year), without regard to the amount of the E&P at the time the distribution was made. c) Reg 1.316-2(a): In determining the source of a distribution, considerations should be given first, to the E&P of the taxable year; and second, to the E&P accumulated since Feb 28, 1913 d) Distributions are dividends within the meaning of 316 Must be INCLUDED in GROSS INCOME (1) recovery of SH basis in stock (2) Excess over basis treated as gain from sale or exchange of stock (3) 2 presumptions under 316 (a) every distribution is deemed to be made out of E&P to the extent that they exist AND (b) is deemed to be made from the most recently accumulated E&P 2.
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