Year of Award
Master of Science in Taxation (MST)
College of Business & Professional Studies
consolidated, regulations, IRS, depreciation, E&P
Earnings and profits(E&P) is important for tax practitioners. Undefined in the tax law, E&P impacts the taxation of some items. The courts have attempted to define it, but even they can't produce a universal definition. Generally, E&P is a measure of the income earned from a pure economic standpoint.
Earnings and Profits is used to (1) define a taxable dividend(Section 316) ; (2) adjust the tax basis in the stock held in other members(Reg. Sec. 1.1502-32); (3) determine the amount of deemed dividends for purposes of a deemed foreign tax credit under Section 902; (4) determine under Subpart F the income that otherwise would be tax deferred to be taxed as earned by the foreign subsidiary, and (5) determine upon disposition of foreign stock an amount of otherwise capital gain to be recognized as ordinary income. Finally, there are areas whose basis is believed to be founded on the E&P concept. The Adjusted Current Earnings(ACE) concept found in the alternative minimum tax(AMT) computation specifically mentions E&P by name in determining how certain income and expense items are treated for purposes of AMT.
The mechanics of computing E&P is based upon the economics of the activity. This thesis examines certain items that appear in E&P calculations and states the proper treatment and the support for that treatment. This paper or portions of it, could be removed and placed in each practitioner file requiring E&P computation.
The filing requirements for E&P are few. An annual Form 5452 is required for those corporations paying dividends in excess of their E&P. Bookkeeping is required to be maintained for future support of nontaxable or ordinary income treatment as well as support for basis determination upon future sale.
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Forbis, Carl D., "Earnings and Profits" (1990). Theses, Dissertations, and Capstone Projects. 441.
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