At the start of current year, Indiego corporation (a calender year taxpayer) has accumulated E and P of \$240000. Indigo's current E and P is \$160000, and at the end of the year, it distributes \$440,000(\$220,000) to its equal shareholders, Sarah and Mason.their basis in the stock is \$ 8000 for sarah and \$32000 for Mason.

How is the distribution treated for tax purpose?

Asnake from USA

Asnake, As per IRS of USA, after distribution of dividend, tax will be paid on dividend income by shareholder. As per the white paper of Federal Income tax

For your knowledge, I want to tell accumulated E and P means accumulated earning and profit. At the end, accumulated earning and profit is just like retained earning. Because we charged income tax on the corporation when corporation obtained net profit. After adjusting the corporation income tax and distribution of dividend, we transfer it to balance sheet's reserve and surplus.

Simple Formula is

Opening Accumulated E and P as per opening balance sheet

Add + Current Earning and Profit

Less - Distribution of Dividend from Current E and P

Less - Distribution of Dividend from Accumulated E and P

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Accumulated E and P at the end of year which will transfer to balance sheet

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Accounting Education: How is the Distribution of Dividend Treated for Tax Purposes
How is the Distribution of Dividend Treated for Tax Purposes
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Accounting Education
https://www.svtuition.org/2013/07/Federal-Income-Tax-on-Dividends-and-Other-Distributions.html
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