Corporate Taxation: Distributions, Redemptions, and Tax Accounting
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Corporate Distribution Layers
Distributions are applied in the following order: Accumulated E&P + Current E&P, then basis, then the remainder is treated as capital gain.
- No Dividend: If there is no E&P, reduce current E&P first. Negative AEP still distributes E&P.
- Offset: Half of current E&P is lost to offset AEP before distribution.
Property Distributions
Recognize gains, but not losses.
- Dividend: FMV - Liabilities
- Basis: FMV
- Gains: FMV - Tax Basis
Distribution Table
The amount from CEP is calculated as: (Period distribution / Total distribution) * CEP. AEP is applied to the remainder, then to stock basis.
Stock Distributions and Redemptions
- Stock Distribution: Proportionate distributions are nontaxable and do not reduce E&