Quiz 4: Corporate Nonliquidating Distributions



Sarah and Matt must each recognize $80,000 (0.50 × $160,000) of dividend income. This portion of the distribution reduces Delta's E&P to zero. The additional $40,000 that each shareholder receives is treated a return of capital or capital gain as summarized in the table below. img

Distributions are treated as follows: (1) dividends to the extent of corporate E&P, (2) return of capital to the extent of the shareholder's stock basis, and (3) gain from the sale of stock.