Distributions from corporations to the shareholders in a nonliquidating distribution will usually be classified as a dividend up to the amount of the corporation's
A)earnings and profits.
B)retained earnings.
C)taxable income for the year.
D)stock basis.

Question

Quizplus · Accepted Answer

Nonliquidating distributions from corporations to shareholders are usually treated as dividends up to the amount of the corporation's earnings and profits (E&P). E&P represents the taxable income of a corporation that has not been distributed to the shareholders as dividends or included in the corporation's capital accounts. If the distribution exceeds the E&P, it is considered a return of capital, which decreases the shareholder's stock basis.

Distributions from Corporations to the Shareholders in a Nonliquidating Distribution