Chapter c 4 corporate nonliquidating distributions
To what extent is this amount considered a dividend?
What is the basis of the distributed property, and when does its holding period begin?
In addition, the distributing corporation must answer the following two questions: What are the amount and character of gain or loss the corporation must recognize?
What effect does the distribution have on the distributing corporation s earnings and profits (E&P) account?
Distributed amounts that exceed a corporation s E&P are treated as a return of capital that reduces the shareholder s basis in his or her stock (but not below zero).
Distributions exceeding the shareholder s basis are treated as gain from the sale of the stock.
This chapter addresses distributions made when a corporation is not in the process of liquidating.A brief summary of the rules for determining the taxability of a distribution follows, along with a simple example.Section 301 requires a shareholder to include in gross income the amount of any corporate distribution to the extent it is a dividend.Shareholders who receive such distributions might recognize ordinary income, capital gain, or no taxable income at all.The distributing corporation may or may not be required to recognize gain or loss when making the distribution.