In a proportionate nonliquidating distribution of a capital asset
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?Qualified dividends received by a noncorporate shareholder in 2003 through 2010 are subject to a maximum 15% tax rate.Section 316(a) defines dividend as a distribution of property made by a corporation out of its E&P.If the stock is a capital asset in the shareholder s hands, the gain is capital in character.
Its meaning must be gleaned from judicial opinions, Treasury Regulations, and IRC rules regarding how certain transactions affect E&P.
How the corporation and its shareholders treat distributions for tax purposes depends on not only what the corporation distributes but also the circumstances surrounding the distribution. Was the distribution made in exchange for some of the shareholder s 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.