Green Corporation has current E&P of $100,000 and a deficit in accumulated E&P of ($200,000). A $50,000 distribution from Green to its sole shareholderat year-end will not be treated as a dividend because total E&P is a deficit ($100,000).

Question

Quizplus · Accepted Answer

According to the rules of IRC Section 301, distributions to shareholders are treated as dividends to the extent of the corporation's current and accumulated E&P. Since Green Corporation has a deficit in accumulated E&P of ($200,000), the distribution will be treated as a dividend to the extent of the corporation's current E&P of $100,000. Therefore, $50,000 of the distribution will be treated as a dividend and subject to taxation.

Green Corporation Has Current E&P of $100,000 and a Deficit