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 earnings and profits.

Question

Quizplus · Accepted Answer

This is true according to the Internal Revenue Service (IRS) guidelines. Dividends must come from current or accumulated earnings and profits to be treated as such for tax purposes. If the distribution is not from earnings and profits, it may be considered a return of capital or a capital gain.

A Distribution from a Corporation to a Shareholder Will Only