[mdrobbin]

If a corporation has -$100K Current E&P and $40K Accumulated E&P and makes a distribution of $10K at the end of the year, does this $10K distribution come out of the $40K AEP or does the -$100K FIRST make the AEP negative and therefore the distribution does not come out of AEP and is all a return of basis?

This topic is KILLING ME! I thought it came out of AEP because it was positive but Wiley Test Bank is saying AEP at the end of that year is -$140K… so the full distribuiton is a return of basis.

REG makes my head hurt…

FAR - 2012 - PASSED (YAEGER)
AUD - 2012 - PASSED (YAEGER + NINJA NOTES)
BEC - 2012 - PASSED (YAEGER + NINJA NOTES)
REG - 2013 - PASSED (YAEGER + NINJA NOTES + NINJA AUDIO)

ETHICS - 2013 - PASSED

DONE!!! Thank you A71 for all the support! Hiya!!!

[Anonymous]

Think of CEP as net income and AEP and retained earnings….The IRS always wants to try to find ways to consider it a dividend to tax it.

If CEP is +, AEP is -, then it's taxable dividend up to + amount. For example, on a 100 distribution…..

CEP = 70

AEP = <30>

Taxable dividend = 70

Return of investment = 30

If CEP is -, AEP is +, then we would net the two together and its is taxable to the extent of positive net. For example, on a 100 distribution…..

CEP = <40>

AEP = 90

Taxable dividend = 50

Return of investment = 50

If CEP is +, AEP is +, then we would it is taxable to the extent of both combined. For example, on a 100 distribution…..

CEP = 30

AEP = 30

Taxable dividend = 60

Return of investment = 40

If CEP is -, AEP is -, then all is return of capital. For example, on a 100 distribution…..

CEP = <20>

AEP = <20>

Taxable dividend = 0

Return of investment = 100

I hope this helped….

[MustPass1988]

What study method are you using? I am using Rogers and found that his explanation of this topic is actually really good. By the way, I am assuming the $40k you stated above, you meant to be negative.

Current E&P + – + –

Accumulated E&P – + + –

Dividend + (tax up to CEP) NET ++ 0 (all of it is a return of capital)

So, in your example, ($100,000) in CEP and ($40,000) in AEP would net together (in the above graph, neg. CEP and neg. AEP= 0 dividend, full return of capital) for a total of ($140,000). There would be no dividends and the full $10,000 would be a return of capital to the shareholder, leaving -140,000 in AEP.

AUD: PASSED [81]; Expired, retaking August 23rd
BEC: PASSED [83]; Expired, retaking July 11th
REG: PASSED [83]
FAR: FAILED [64]; Retaking May 23rd

[MustPass1988]

Wow, that graph got all messed up, it didn't look like that before I hit send 😉 sorry!

AUD: PASSED [81]; Expired, retaking August 23rd
BEC: PASSED [83]; Expired, retaking July 11th
REG: PASSED [83]
FAR: FAILED [64]; Retaking May 23rd

[Anonymous]

@Mustpass – yup, that's roger…his graphs rock!

[General_Ledger]

From my understanding, you should have a negative -60,000 AEP since 40 – 100 = -60 AEP.

Since you have no AEP or CEP for distribution, then it is a return of Basis. The 10,000 distribution does not come out of your AEP.

FAR 73, 75*, 79! n DONE!
BEC 72, 75
AUD 64, 75
REG 43, 74, 72, 70, 88!
*Expired...FML

HELLO 300 CLUB! 6/8/13

[Author]

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