Current E&P vs. Accumulated E&P (U.S. Corporate Tax)
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- Опубликовано: 5 фев 2025
- 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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I'd just like to tell you that these videos are very helpful. I'm taking corporate tax right now and have to study many hours to understand what is written in the book. The videos you post are critical to help me understand how the topics actually work.
Thanks Joseph. It's comments like these that keeps me motivated to keep producing content. Best of luck to you in your Corporate Tax class!
Oh god, don't stop making videos. Your videos are brilliant! So much value. Really helpful, since I have already started preparing for my last year exams. Much respect!
Thank you for the kind words my friend. I will indeed continue producing videos! It makes me so happy to hear that your exam preparation is going well :)
Sir, I think you made a mistake in example 2. If CEP is negative and AEP is positive, we net them. And if the outcome is a negative number , we don't pay dividends at all, we treat them as ROC/Capital gains. In this video example 1 and 2 have same outcome.
Seriously you make studying/ learning this information super easy
That's great to hear! I'm glad your studying is going well!!
According to my professor and tax textbook, the situation in example 2 is treated differently. it says that if there is a negative current E+P and a positive accumulated E+P, you must net out the two. if the net is positive (i.e. accumulated was larger than current) then it is a dividend to the extent of that positive netted E+P. if the net is negative (like example 2), there is no dividend. Was this changed as part of the TCJA 2017?
You are right ellie m. example 2 given is incorrect......
Thanks for breaking it down with lots of examples!
Appreciate the video! It made learning E&P much easier!
Happy to help!
Great video! Thank you! I fully understand
Glad it helped!
6:58 anyone know why you would multiply CEP by 50% if the distribution occurred mid year (6/30)? i didn't understand the professor's explanation.
This all makes sense to me if there's only one shareholder that owns 100% of the shares. But what if there are multiple shareholders? For example, if I own 10% of the company, do I still recognize the full $6000 as a dividend? Or would I only recognize $600 as a dividend, since that's my proportional share of the Crazy Joe's earnings? If I recognize $6000 as a dividend, and other shareholders do the same, the total dividends recognized would be more than the total earnings, and that doesn't seem to make sense. Thanks for any clarification.
Thanks Ed. U make the material relevant.
I am curious about example 3. When the distribution was made in June 30th, and current E&P calculation became half of its original amount. Where does this calculation come from? Cuz I didn't see any regulation mentioned it?
i have the same question
great video!
In Example 2, don't you net the E&P when Current E&P is negative and Accumulated E&P is positive?
Great videos! quick question: what happens is the current E&P does not completely offset accumulated E&P in your example 2? do we still take taxable dividends up to accumulated E&P or do we net the two? let's say the CEP was -5,000 and AEP is 6,000. Would the taxable portion of dividend be up tp 1,000 or up to 6,000? I've seen it where the CEP and AEP would be netted against each other in this case.Again, really great videos!
You have to treat CEP and AEP seperately. You would not combine the two. In your example, you would first look at CEP of -$5,000 and none of the CEP would go towards dividends since it is negative. Next you would look at AEP, and $6,000 would be a dividend. Hope this helps!