14. Which of the following statements best describes the role of current and acc

Question

14. Which of the following statements best describes the role of current and accumulated earnings and profits in determining if a distribution is a dividend?

Multiple Choice

A. A distribution will only be a dividend if total earnings and profits (current plus accumulated) is positive at the time of the distribution.

B. A distribution can never be a dividend if current earnings and profits are negative.

C. At a minimum, some portion of the distribution will be a dividend if current earnings and profits for the year are positive, even if accumulated earnings and profits are negative.

D. A distribution will never be a dividend if current earnings and profit for the year are negative, even if accumulated earnings and profits is positive.

Explanation / Answer

A distribution from a corporation is a dividend to the extent of the corporation’s current-year E&P and accumulated E&P. A distribution will be treated as a dividend to the extent of a corporation’s current-year E&P, even if the corporation has an accumulated E&P deficit.

Thus, in the following case, the following statements best describes the role of current and accumulated earnings and profits in determining if a distribution is a dividend:

C. At a minimum, some portion of the distribution will be a dividend if current earnings and profits for the year are positive, even if accumulated earnings and profits are negative.

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