At the beginning of the year, Clampett, Inc. had $100,000 in its AAA, $60,000 of earnings and profits from prior C corporation years. During the year, Clampett, Inc. earned $50,000 of ordinary income and paid $200,000 in distributions to its shareholders. Assume that J. D. owns 25% of Clampett, Inc., his basis in Clampett, Inc. at the beginning of the year is $30,000, and his share of the distribution was $50,000. How much, if any, of the distribution is taxable as a dividend?

Question

Quizplus · Accepted Answer

Of the $200,000 distributed to shareholders, the first $150,000 is distributed from the AAA account and the remaining $50,000 is distributed from prior C corporation earnings and profits. As a 25% shareholder, J. D.'s share of the dividend out of earnings and profits is $12,500 ($50,000 × 25%).

At the Beginning of the Year, Clampett, Inc