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This is by far the most important ramification of having C corporation earnings and profits.
The E&P concept is imperative to the double taxation system imposed on C corporations.
Each category of distribution is taxed differently.
The first and most important question is whether a distribution is really a dividend, and E&P is the measuring stick used in this scenario.
The shareholder’s stock basis is $50,000 consisting of an initial capital investment of $10,000 plus $40,000 of undistributed S corporation income (AAA) on which the shareholder has paid already paid tax.
Assume the corporation makes a distribution of $70,000.
The first $40,000 of the distribution represents distributing previously taxed earnings of $40,000, same as above.
The next ,000 of the distribution would be considered a taxable dividend to the shareholder (this is the amount of C Corporation E&P).The remaining ,000 is treated as first a tax-free return of the shareholder’s initial stock investment of ,000, and the remaining ,000 represents payment for the sale of the shareholder’s stock, normally treated as capital gain.To summarize, the existence of C Corporation E&P simply means that distributions from the corporation in excess of undistributed previously taxed income (AAA) will be considered an ordinary dividend to the extent of C Corporation E&P.The following example illustrates how distributions are treated depending on whether the corporation has C Corporation E&P.Assume an S corporation is owned by a single shareholder.Then, a second tax is paid when those same earnings are distributed as dividends to the shareholders.Tags: Adult Dating, affair dating, sex dating