Here is for my prior confusion.
Dahl Corp. Earnings and Profits (E&P) prior to its cash distributions in the current year:
The following information pertains to Dahl Corp.:
Accumulated earnings and profits $120,000
Earnings and profits for the current year 160,000
Cash distributions to individual stockholders during the year 360,000
What is the total amount of distributions taxable as ordinary dividend income to Dahl's stockholders in the current year?
A.
$0
B.
$160,000
Correct C.
$280,000
D.
$360,000
Explanation:
Accumulated earnings and profits $120,000
Earnings and profits for the current year 160,000
Total E&P $280,000
Wherever a C corporation makes a distribution to its shareholders, the maximum amount of distributions taxable as ordinary dividend income to its stockholders is the total E&P.
Result:
Dividend income $280,000
Then return of basis of stock to the extent of basis-not taxable
Capital gains for any distribution in excess of basis-taxable