Distributions are only considered income to the extent of th

Distributions are only considered income to the extent of the E & P. Class, what is E & P? How do you calculate it?

Solution

A distribution from a corporation is a dividend to the extent of the corporation’s current year E&P and accumulated E&P of previous years.

E&P is earnings and profits is measure of a corporation’s economic ability to pay dividends to its shareholders.

It is calculated by making adjustments to taxable income for the year.