Chap C4
Issues for SH of nonliquidating distributions received:
- amount of distribution
- is it dividend, return of capital, capital gain
- basis of distributed property and holding period
Corp issues of distributions
- any gain/loss to recognize on property distributed
- effect on earnings and profits
Distributions by corps are presumed to be dividends unless proven otherwise by taxpayer.
Do this by tracking E & P (earnings and profits)
Split of distributions:
1. Dividend income to extent of E & P.
2. Nontaxable return of capital to extent of stock basis
3. Capital gain for any excess
E & P is similar to what a corp can pay in dividends without impairing capital. Like
retained earnings in GAAP.
Current and Accumulated E & P:
1. Distributions come from current, then from accumulated. Can have dividend even if
accumulated deficit > current E & P.
2. If deficit in accumulated and positive in current, dividend to extent of current.
3. If deficit in current and positive in accumulated, determine net at date of distribution
(prorate current deficit against accumulated). Dividend to extent of positive balance.
If net 35% of gross estate less
expenses and losses of estate
Must consider attribution rules in regards to ownership by related parties.
Corporation effect:
1. recognize gain if distribute appreciated property, but not loss
2. E & P effect
- incr by E & P gain recog
- reduce by amount of distribution. If dividend, reduce by greater of AB or FMV of
property, if sale reduce curr & accum by % of stock redeemed