Question

What form is provided by the C corporation to the shareholders when the distribution to the...

What form is provided by the C corporation to the shareholders when the distribution to the shareholders is in excess of the E&P?

Homework Answers

Answer #1
  • Distribution is a dividend and is taxed to the shareholders as an ordinary income to the extent the corporation has accumulated E&P.
  • Distributions in excess of accumulated E&P are distributed as a form of nontaxable return of capital to the extent of the shareholder’s basis in stock.
  • Distributions in excess of the E&P are considered as a sale of the shareholder’s stock, and are taxaas a long-term capital gain, depending on the holding period.
  • The distribution made is decreased by the liabilities held by the shareholder (e.g., a mortgage on a distributed piece of real estate).
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