Current E&P vs. Accumulated E&P (U.S. Corporate Tax)

This video discusses the distinction between current E&P (Earnings and Profits) and accumulated E&P. Under Section 301 of the U.S. tax code, corporate distributions are first treated as a dividend to the extent of current E&P, with any remaining amount being applied against accumulated E&P (and if there is any amount remaining after that, it reduces the shareholder's basis, and once the shareholder's basis is reduced to zero any remaining amount if treated as a gain on a sale or exchange). The application of a distribution against current E&P first can lead to some unexpected consequences. For example, a firm that has been incurring tax losses for years and has a very negative accumulated E&P balance might make a distribution to a shareholder that is treated as a dividend if the firm has positive current E&P (because you look to current E&P first to determine whether the distribution is a dividend).—
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