Green Corporation has current earnings and profits of $100,000 and negative accumulated earnings and profits of ($200,000). A $50,000 distribution from Green to its sole shareholder will not be treated as a dividend because total earnings and profits is a negative $100,000.
The distribution will be a dividend because Green has positive current E&P.

Question

Quizplus · Accepted Answer

The statement is incorrect. Even if Green has positive current E&P of $100,000, the distribution cannot be treated as a dividend because the accumulated earnings and profits are negative ($200,000). The distribution would be considered as a return of capital until the accumulated earnings and profits reach zero.

Green Corporation Has Current Earnings and Profits of $100,000 and Negative