1. Entity Choice: The C Corporate Taxpayer
Chapter 11
Entity Choice: The C Corporate Taxpayer

2. What Constitutes a Dividend?
Dividend is a distribution to shareholders of a portion of corporate profits.
Distributions to shareholders are deemed to be dividends if the corporation has either current or accumulated earnings and profits (E&P).
E&P similar to retained earnings
Distributions in excess of earnings and profits are first a return of capital (reduce basis in stock) and then a capital gain to the shareholder.

3. Stock Repurchase vs. Dividend
Purchase by corporation of its own shares from existing shareholders is called a stock redemption.
Redemptions are taxable as sales rather than as dividends.
Example—Corporation redeems 1,000 shares of stock from shareholder for $25,000. Shareholder’s cost basis in stock is $15,000.
Result—shareholder recognizes capital gain = $10,000.
If distribution had been dividend, s/h would have income of $25,000.