A distribution from a corporation to a shareholder will only be treated as a dividend for tax purposes if the distribution is paid out of current or accumulated E&P.

Question

Quizplus · Accepted Answer

This is known as the E&P requirement for dividends. If a distribution is paid out of other sources such as the corporation's capital, it may be considered a return of capital or a capital gain, rather than a dividend, for tax purposes.

A Distribution from a Corporation to a Shareholder Will Only