ExpertHard1 markMultiple Choice
CPA · Question 48 · Area II: Entity Tax Compliance
A C Corporation distributes cash of $50,000 to a shareholder. The corporation has Current E&P of $10,000 and Accumulated E&P of ($40,000) deficit. What is the amount of the dividend?
A C Corporation distributes cash of $50,000 to a shareholder. The corporation has Current E&P of $10,000 and Accumulated E&P of ($40,000) deficit. What is the amount of the dividend?
Answer options:
A.
$0
B.
$10,000
C.
$50,000
D.
$5,000
How to approach this question
Nimble Dividend Rule: If Current E&P is positive, distributions are dividends to that extent, even if Accumulated E&P is negative.
Full Answer
B.$10,000✓ Correct
B
IRC §316(a). Distributions are dividends if covered by Current E&P ($10,000), regardless of the accumulated deficit.
Common mistakes
Netting Current and Accumulated E&P when Current is positive.
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