Which Form 1120 C Earnings 2023-2024

In this video, we're going to talk about the distinction between current EMP and accumulated EMP. So, if you remember under Section 301 of the US tax code, when a corporation makes a non-liquid e'en that qualifies as a dividend, it's first going to be considered a dividend to the extent of any earnings and profits. That's first going to be applied against current EMP, and thereafter it's going to be applied against accumulated EMP. Then it's going to reduce the shareholders' basis if EMP has already gone to zero, if it's been exhausted, or if it's negative. And then any remaining amount is going to be considered a gain on the sale or exchange of property. If the stock was held as a capital asset, then that's going to be a capital gain. So, I want to talk about some examples to kind of show you how this distinction between current EMP and accumulated EMP can create some situations that you might not have expected. So, let's say that you buy stock in a corporation called Krazy Joe's flying lessons because you want to learn how to fly an airplane. You purchase that stock for a thousand dollars. So, let's say that that thousand dollars is your basis in the stock. And so, Krazy Joe's has current EMP of six thousand dollars and accumulated EMP of negative two hundred thousand dollars. (Note: Negative numbers indicated by parentheses indicate accumulated losses over time) So now, Crazy Joe is going to make a distribution of ten thousand dollars cash to you, and now we need to figure out how much is the dividend, how much is the return of capital, what's going to happen to your basis, and so forth, right? So let's take this 10,000 here. We'll say that that 10,000, we're...