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RD, Certified Public Accountant (CPA)
Category: Tax
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Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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# On January 1, Tanager Corporation (a calendar year taxpayer)

### Resolved Question:

On January 1, Tanager Corporation (a calendar year taxpayer) has accumulated E & P of \$190,000. During the year, Tanager incurs a net loss of \$240,000 from operations that accrues ratably. On June 30, Tanager distributes \$100,000 to Sharisa, its sole shareholder, who has a basis in her stock of \$40,000. How much of the \$100,000 is a dividend to Sharisa?
a. \$0.
b. \$70,000.
c. \$60,000.
d. \$50,000.
e. None of the above.
Submitted: 6 years ago.
Category: Tax
Expert:  RD replied 6 years ago.
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If accumulated E & P is positive and current E&P is a deficit, net both at date of distribution

If balance is zero or a deficit, distribution is a return of capital

If balance is positive, distribution is a dividend to the extent of the balance

Any current E & P is allocated ratably during the year unless the parties can show otherwise

So on June 30 -

Accumulated E&P will be \$70,000 (\$190000 less 240000/12*6 (loss upto the date of distirbution))

So distribution upto \$70K is dividend and balance is return of capital.

RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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