Have a Tax Question? Ask a Tax Expert
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.
Answer is b.