A distribution to a shareholder could result in dividend income even if the corporation had a deficit in current E & P.

Question

Quizplus · Accepted Answer

Dividend income is not dependent on the current E & P of the corporation. The distribution of dividends can be made even if the corporation has a deficit in current E & P as long as it has accumulated E & P from previous years. However, if the distribution exceeds the accumulated E & P, it may be treated as a return of capital and subject to different tax treatment.

A Distribution to a Shareholder Could Result in Dividend Income