Question

A corporation distributes depreciated noncash property to a shareholder. What impact does the distribution have on the corporation's earnings and profits?

Answer 1

Any distribution to sharrholders from earnings and profits is generally a dividend. However a distribution is not a taxable dividend if it is a return of capital to the shareholder,

distribution of depreciated property

If the FMV of depreciated property distributed to shareholders is more than the adjusted basis of that property, the corporation must report ordinary income because of depreciation.

For a distribution of properly decrease the earnings and profits by the adjusted basis of that property but not beloww zero.