J Corporation had current earnings and profits of $10,000 and accumulated earnings and profits at the beginning of the year of $20,000.Assuming three equal distributions of $60,000 are made during the year, each distribution will be treated the same.

Question

Quizplus · Accepted Answer

Each distribution is not treated the same because the distributions first reduce current earnings and profits, then accumulated earnings and profits, and finally are considered a return of capital or capital gain. With $10,000 in current earnings and profits and $20,000 in accumulated earnings, the first distributions would deplete these before any distribution is treated as a return of capital or capital gain.

J Corporation Had Current Earnings and Profits of $10,000 and Accumulated