9.2 - Corporate Tax Special Topics - Current Earnings & Profits Flashcards
Current Earnings & Profits
Are “earnings and profits (E&P)” the same amount as “retained earnings”?
No
Current Earnings & Profits
What is the term “earnings & profits (E&P)?
Federal tax accounting version of financial accounting’s retained earnings
Current Earnings & Profits
What does E&P measure?
A corporation’s ability to pay a dividend
Current Earnings & Profits
How many types of E&P are there?
2 – Current and accumulated
Current Earnings & Profits
: Calculate the increase or (decrease) to accumulated E&P.
Current E&P – Distributions
Current Earnings & Profits
True or False >>> Calculating current E&P starts with the current-year taxable income or loss and then makes various positive and negative adjustments.
True
Current Earnings & Profits
List the positive adjustments to calculating current E&P which includes some exempt income, deductions, and deferred income.
- interest from municipal bonds;
- injury compensation;
- life insurance proceeds;
- DRD;
- capital and NOL carryover;
- depreciation in excess of S/L;
- income per completed contract method;
- deferred income from an installment sale
Current Earnings & Profits
List the negative adjustments to calculating current E&P which includes some nondeductible items for taxable income and recognized deferred income.
- life insurance premiums;
- penalties;
- fines;
- municipal bond expense;
- excessive compensation;
- federal income taxes;
- portion of meals and entertainment;
- prior year(s) installment sales
Current Earnings & Profits
Do transactions excluded from both E&P and taxable income require any adjustments?
No
Current Earnings & Profits
Provide examples of transactions that are excluded from both E&P and taxable income.
- Unrealized gains and losses;
- gifts;
- state tax refunds;
- contributions to capital
