§312 — Effect on earnings and profits
61 cases·9 followed·7 distinguished·1 criticized·1 overruled·43 cited—15% support
Statute Text — 26 U.S.C. §312
Except as otherwise provided in this section, on the distribution of property by a corporation with respect to its stock, the earnings and profits of the corporation (to the extent thereof) shall be decreased by the sum of—
the amount of money,
the principal amount of the obligations of such corporation (or, in the case of obligations having original issue discount, the aggregate issue price of such obligations), and
the adjusted basis of the other property, so distributed.
On the distribution by a corporation, with respect to its stock, of any property (other than an obligation of such corporation) the fair market value of which exceeds the adjusted basis thereof—
the earnings and profits of the corporation shall be increased by the amount of such excess, and
subsection (a)(3) shall be applied by substituting “fair market value” for “adjusted basis”.
For purposes of this subsection and subsection (a), the adjusted basis of any property is its adjusted basis as determined for purposes of computing earnings and profits.
In making the adjustments to the earnings and profits of a corporation under subsection (a) or (b), proper adjustment shall be made for—
the amount of any liability to which the property distributed is subject, and
the amount of any liability of the corporation assumed by a shareholder in connection with the distribution.
The distribution to a distributee by or on behalf of a corporation of its stock or securities, of stock or securities in another corporation, or of property, in a distribution to which this title applies, shall not be considered a distribution of the earnings and profits of any corporation—
if no gain to such distributee from the receipt of such stock or securities, or property, was recognized under this title, or
if the distribution was not subject to tax in the hands of such distributee by reason of section 305(a).
For purposes of this subsection, the term “stock or securities” includes rights to acquire stock or securities.
The gain or loss realized from the sale or other disposition (after
February 28, 1913
) of property by a corporation—
for the purpose of the computation of the earnings and profits of the corporation, shall (except as provided in subparagraph (B)) be determined by using as the adjusted basis the adjusted basis (under the law applicable to the year in which the sale or other disposition was made) for determining gain, except that no regard shall be had to the value of the property as of
March 1, 1913
; but
for purposes of the computation of the earnings and profits of the corporation for any period beginning after
February 28, 1913
, shall be determined by using as the adjusted basis the adjusted basis (under the law applicable to the year in which the sale or other disposition was made) for determining gain.
Gain or loss so realized shall increase or decrease the earnings and profits to, but not beyond, the extent to which such a realized gain or loss was recognized in computing taxable income under the law applicable to the year in which such sale or disposition was made. Where, in determining the adjusted basis used in computing such realized gain or loss, the adjustment to the basis differs from the adjustment proper for the purpose of determining earnings and profits, then the latter adjustment shall be used in determining the increase or decrease above provided. For purposes of this subsection, a loss with respect to which a deduction is disallowed under section 1091 (relating to wash sales of stock or securities), or the corresponding provision of prior law, shall not be deemed to be recognized.
Where a corporation receives (after
February 28, 1913
) a distribution from a second corporation which (under the law applicable to the year in which the distribution was made) was not a taxable dividend to the shareholders of the second corporation, the amount of such distribution shall not increase the earnings and profits of the first corporation in the following cases:
no such increase shall be made in respect of the part of such distribution which (under such law) is directly applied in reduction of the basis of the stock in respect of which the distribution was made; and
no such increase shall be made if (under such law) the distribution causes the basis of the stock in respect of which the distribution was made to be allocated between such stock and the property received (or such basis would, but for section 307(b), be so allocated).
If any increase or decrease in the earnings and profits for any period beginning after
February 28, 1913
, with respect to any matter would be different had the adjusted basis of the property involved been determined without regard to its
March 1, 1913
, value, then, except as provided in paragraph (2), an increase (properly reflecting such difference) shall be made in that part of the earnings and profits consisting of increase in value of property accrued before
March 1, 1913
.
If the application of subsection (f) to a sale or other disposition after
February 28, 1913
, results in a loss which is to be applied in decrease of earnings and profits for any period beginning after
February 28, 1913
, then, notwithstanding subsection (f) and in lieu of the rule provided in paragraph (1) of this subsection, the amount of such loss so to be applied shall be reduced by the amount, if any, by which the adjusted basis of the property used in determining the loss exceeds the adjusted basis computed without regard to the value of the property on
March 1, 1913
, and if such amount so applied in reduction of the decrease exceeds such loss, the excess over such loss shall increase that part of the earnings and profits consisting of increase in value of property accrued before
March 1, 1913
.
In the case of a distribution or exchange to which section 355 (or so much of section 356 as relates to section 355) applies, proper allocation with respect to the earnings and profits of the distributing corporation and the controlled corporation (or corporations) shall be made under regulations prescribed by the Secretary.
In the case of a reorganization described in subparagraph (C) or (D) of section 368(a)(1), proper allocation with respect to the earnings and profits of the acquired corporation shall, under regulations prescribed by the Secretary, be made between the acquiring corporation and the acquired corporation (or any corporation which had control of the acquired corporation before the reorganization).
If a corporation distributes property with respect to its stock and if, at the time of distribution—
there is outstanding a loan to such corporation which was made, guaranteed, or insured by the United States (or by any agency or instrumentality thereof), and
the amount of such loan so outstanding exceeds the adjusted basis of the property constituting security for such loan,
then the earnings and profits of the corporation shall be increased by the amount of such excess, and (immediately after the distribution) shall be decreased by the amount of such excess. For purposes of paragraph (2), the adjusted basis of the property at the time of distribution shall be determined without regard to any adjustment under section 1016(a)(2) (relating to adjustment for depreciation, etc.). For purposes of this subsection, a commitment to make, guarantee, or insure a loan shall be treated as the making, guaranteeing, or insuring of a loan.
For purposes of computing the earnings and profits of a corporation for any taxable year beginning after June 30, 1972, the allowance for depreciation (and amortization, if any) shall be deemed to be the amount which would be allowable for such year if the straight line method of depreciation had been used for each taxable year beginning after June 30, 1972.
If for any taxable year a method of depreciation was used by the taxpayer which the Secretary has determined results in a reasonable allowance under section 167(a) and which is the unit-of-production method or other method not expressed in a term of years, then the adjustment to earnings and profits for depreciation for such year shall be determined under the method so used (in lieu of the straight line method).
Except as provided in subparagraph (B), in the case of tangible property to which section 168 applies, the adjustment to earnings and profits for depreciation for any taxable year shall be determined under the alternative depreciation system (within the meaning of section 168(g)(2)).
For purposes of computing the earnings and profits of a corporation, except as provided in clause (ii), any amount deductible under section 179, 179B, 179C, 179D, or 179E shall be allowed as a deduction ratably over the period of 5 taxable years (beginning with the taxable year for which such amount is deductible under section 179, 179B, 179C, 179D, or 179E, as the case may be).
In the case of a corporation that is a real estate investment trust, any amount deductible under section 179D shall be allowed in the year in which the property giving rise to such deduction is placed in service (or, in the case of energy efficient building retrofit property, the year in which the qualifying final certification is made).
The provisions of paragraph (1) shall not apply in computing the earnings and profits of a foreign corporation for any taxable year for which less than 20 percent of the gross income from all sources of such corporation is derived from sources within the United States.
In computing the earnings and profits of a corporation for any taxable year, the allowance for depreciation (and amortization, if any) shall be computed without regard to any basis adjustment under section 50(c).
The earnings and profits of a corporation shall not include income from the discharge of indebtedness to the extent of the amount applied to reduce basis under section 1017.
If—
the interest of any shareholder of a corporation is terminated or extinguished in a title 11 or similar case (within the meaning of section 368(a)(3)(A)), and
there is a deficit in the earnings and profits of the corporation,
then such deficit shall be reduced by an amount equal to the paid-in capital which is allocable to the interest of the shareholder which is so terminated or extinguished.
The earnings and profits of any corporation shall not be decreased by any interest with respect to which a deduction is not or would not be allowable by reason of section 163(f), unless at the time of issuance the issuer is a foreign corporation that is not a controlled foreign corporation (within the meaning of section 957) and the issuance did not have as a purpose the avoidance of section 163(f) of this subsection 11 Subsec. (m) was enacted without a period at the end.
For purposes of computing the earnings and profits of a corporation, the following adjustments shall be made:
In the case of any amount paid or incurred for construction period carrying charges—
no deduction shall be allowed with respect to such amount, and
the basis of the property with respect to which such charges are allocable shall be increased by such amount.
For purposes of this paragraph, the term “construction period carrying charges” means all—
interest paid or accrued on indebtedness incurred or continued to acquire, construct, or carry property,
property taxes, and
similar carrying charges,
to the extent such interest, taxes, or charges are attributable to the construction period for such property and would be allowable as a deduction in determining taxable income under this chapter for the taxable year in which paid or incurred.
The term “construction period” has the meaning given the term production period under section 263A(f)(4)(B).22 See References in Text note below.
Any amount allowable as a deduction under section 263(c) in determining taxable income (other than costs incurred in connection with a nonproductive well)—
shall be capitalized, and
shall be allowed as a deduction ratably over the 60-month period beginning with the month in which such amount was paid or incurred.
Any amount allowable as a deduction under section 616(a) or 617 in determining taxable income—
shall be capitalized, and
shall be allowed as a deduction ratably over the 120-month period beginning with the later of—
the month in which production from the deposit begins, or
the month in which such amount was paid or incurred.
Sections 173 and 248 shall not apply.
Earnings and profits shall be increased or decreased by the amount of any increase or decrease in the LIFO recapture amount as of the close of each taxable year; except that any decrease below the LIFO recapture amount as of the close of the taxable year preceding the 1st taxable year to which this paragraph applies to the taxpayer shall be taken into account only to the extent provided in regulations prescribed by the Secretary.
For purposes of this paragraph, the term “LIFO recapture amount” means the amount (if any) by which—
the inventory amount of the inventory assets under the first-in, first-out method authorized by section 471, exceeds
the inventory amount of such assets under the LIFO method.
For purposes of this paragraph—
The term “LIFO method” means the method authorized by section 472 (relating to last-in, first-out inventories).
The term “inventory assets” means stock in trade of the corporation, or other property of a kind which would properly be included in the inventory of the corporation if on hand at the close of the taxable year.
The inventory amount of assets under the first-in, first-out method authorized by section 471 shall be determined—
if the corporation uses the retail method of valuing inventories under section 472, by using such method, or
if subclause (I) does not apply, by using cost or market, whichever is lower.
In the case of any installment sale, earnings and profits shall be computed as if the corporation did not use the installment method.
In the case of a taxpayer who uses the completed contract method of accounting, earnings and profits shall be computed as if such taxpayer used the percentage of completion method of accounting.
If a corporation distributes amounts in a redemption to which section 302(a) or 303 applies, the part of such distribution which is properly chargeable to earnings and profits shall be an amount which is not in excess of the ratable share of the earnings and profits of such corporation accumulated after February 28, 1913, attributable to the stock so redeemed.
In the case of a foreign corporation described in subsection (k)(4)—
paragraphs (4) and (6) shall apply only in the case of taxable years beginning after
December 31, 1985
, and
paragraph (5) shall apply only in the case of taxable years beginning after
December 31, 1987
.
For purposes of subsection (a)(2), the terms “original issue discount” and “issue price” have the same respective meanings as when used in subpart A of part V of subchapter P of this chapter.
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.312-1 Adjustment to earnings and profits reflecting distributions by corporations
- Treas. Reg. §Treas. Reg. §1.312-1(a) §1.312-1(a)
- Treas. Reg. §Treas. Reg. §1.312-1(b) The adjustment provided in section 312(a)(3) and paragraph (a)(3) of this section with respect to a distribution of property (other than money or its own obligations) shall be made notwithstanding the fact that such property has appreciated or depreciated in value since acquisition.
- Treas. Reg. §Treas. Reg. §1.312-1(c) §1.312-1(c)
- Treas. Reg. §Treas. Reg. §1.312-1(d) In the case of a distribution of stock or rights to acquire stock a portion of which is includible in income by reason of section 305(b), the earnings and profits shall be reduced by the fair market value of such portion.
- Treas. Reg. §Treas. Reg. §1.312-1(e) No adjustment shall be made in the amount of the earnings and profits of the issuing corporation upon a disposition of section 306 stock unless such disposition is a redemption.
- Treas. Reg. §Treas. Reg. §1.312-10 Allocation of earnings in certain corporate separations
- Treas. Reg. §Treas. Reg. §1.312-10(a) If one corporation transfers part of its assets constituting an active trade or business to another corporation in a transaction to which section 368(a)(1)(4) applies and immediately thereafter the stock and securities of the controlled corporation are distributed in a distribution or exchange to which section 355 (or so much of section 356 as relates to section 355) applies, the earnings and profits of the distributing corporation immediately before the transaction shall be allocated between th
- Treas. Reg. §Treas. Reg. §1.312-10(b) §1.312-10(b)
- Treas. Reg. §Treas. Reg. §1.312-10(c) In no case shall any part of a deficit of a distributing corporation within the meaning of section 355 be allocated to a controlled corporation.
- Treas. Reg. §Treas. Reg. §1.312-11 Effect on earnings and profits of certain other tax-free exchanges, tax-free distributions, and tax-free transfers from one corporation to another
- Treas. Reg. §Treas. Reg. §1.312-11(a) In a transfer described in section 381(a), the acquiring corporation, as defined in § 1.
- Treas. Reg. §Treas. Reg. §1.312-11(b) §1.312-11(b)
- Treas. Reg. §Treas. Reg. §1.312-11(c) A distribution described in paragraph (b) of this section does not diminish the earnings or profits of any corporation.
- Treas. Reg. §Treas. Reg. §1.312-11(d) For the purposes of this section, the terms reorganization and party to the reorganization shall, for any taxable year beginning before January 1, 1934, have the meanings assigned to such terms in section 112 of the Revenue Act of 1932 (47 Stat.
- Treas. Reg. §Treas. Reg. §1.312-11(e) Effective/applicability date.
- Treas. Reg. §Treas. Reg. §1.312-11(i) Of stock or securities in such corporation or in another corporation a party to the reorganization in any taxable year beginning before January 1, 1934, without the surrender by the distributees of stock or securities in such corporation (see section 112(g) of the Revenue Act of 1932 (47 Stat.
- Treas. Reg. §Treas. Reg. §1.312-12 Distributions of proceeds of loans guaranteed by the United States
- Treas. Reg. §Treas. Reg. §1.312-12(a) The provisions of section 312(j) are applicable with respect to a loan, any portion of which is guaranteed by an agency of the United States Government without regard to the percentage of such loan subject to such guarantee.
- Treas. Reg. §Treas. Reg. §1.312-12(b) §1.312-12(b)
- Treas. Reg. §Treas. Reg. §1.312-15 Effect of depreciation on earnings and profits
- Treas. Reg. §Treas. Reg. §1.312-15(a) Depreciation for taxable years beginning after June 30, 1972—(1) In general.
- Treas. Reg. §Treas. Reg. §1.312-15(b) Transitional rules—(1) Depreciation.
- Treas. Reg. §Treas. Reg. §1.312-15(c) Certain foreign corporations.
- Treas. Reg. §Treas. Reg. §1.312-15(d) Books and records.
61 Citing Cases
(cid:16)042Thus, even assuming petitioner is receiving a double deduction, we believe that the detailed rules in section 1.1502-32 * * * together with section 312(k), can fairly be read to authorize the result herein, and, therefore, Ilfeld Co. is inapplicable.
* * * Thus, the Secretary has wide latitude to prescribe these earnings and profits (E&P) calculations but, pursuant to section 312(k)(4), cannot require a foreign corporation that earns less than 20% ofits gross income from U.S.
An individual qualifies as a statutory employee under section 3121(d)(3) only if the individual is not, a common law employee pursuant to section 312l(d)(2) .
f foreign corporations as well as amounts determined under I.R.C. § 956. DP made no distributions to its partners in 2007 or 2008, and P did not increase its gross income on account of DP’s inclusions under I.R.C. § 951. In a prior opinion applying I.R.C. § 312, we held that DP’s inclusions under I.R.C. § 951 increased the earnings and profits of its partners, all of which are controlled foreign corporations. The question before us now on Cross-Motions for Partial Summary Judgment is whether P i
Respondent contends that the loan was not bona fide debt, that the funds transferred from CSA to CSE constituted a disguised dividend, that CSE was required to increase its E&P under section 312 by the amount ofthis dividend, and that the subsequent distribution from CSE to Paradym was a taxable dividend under sections 316(a) and 301(c)(1).
420, 422 (2013); see also sec.
420, 422 (2013); see also sec.
at 488. Like current section 6013(b)(1), section 51(g) ofthe 1939 Code applied only "[i]fan individual has filed a separate return". The Senate Finance Committee report reflected the Board ofTax Appeals' and the Tax Court's prior holdings that the election by married "In actuality this change was even more favorable than the resu
312 (b), (d), 111 Stat. at 839, 841. ¹°We shall not use the regulations under sec. 1034 as guidance since that section was repealed effective May 6, 1997. See supra note 9. - 18 - Section 1.1033(a)-2(c)(5), Income Tax Regs., which addresses the meaning ofthe term "notified" in section 1033(a), indicates that any deficiency attributable to sec
2009-130; see also Estate ofUris v.
* * * Therefore, it does not prove that there cannot be an ACE adjustment related to depletion under the general earnings and profits rule, particularly because the regulations under section 312 specifically include deductions under the percentage depletion method as an item that is not allowable as a deduction when calculating earnings and profits.
Section 312 of TRA 1997 is effective for sales and exchanges after May 6, 1997. TRA 1997 sec. 312(d), 111 Stat. 841. In the instant case, petitioners sold their home on October 19, 1994. Petitioners, however, did not purchase a replacement home because they exhausted their finances on Mrs. Rehberg’s medical bills. Petitioners contend that using the
river’s license, had his truck registered in that State, was registered to vote there, and spent significant amounts of time in Florida during 1992 and each year thereafter. Respondent also points out that starting in 1994, 1 Sec. 121 was amended by sec. 312 of the Taxpayer Relief Act of 1997, Pub. L. 105-34, 111 Stat. 836, effective for sales and exchanges after May 6, 1997. - 7 - petitioner filed his Federal income tax returns using a Florida address and did not file New Jersey State income ta
ever, provides an exception under which, if certain requirements are met, taxpayers defer recognition of gain when sale proceeds are reinvested in a new principal residence.2 The section reads in pertinent part as follows: 2Sec. 1034 was repealed by sec. 312 of the Taxpayer Relief Act of 1997, Pub. L. 105-34, 111 Stat. 836, generally effective for sales and exchanges after May 6, 1997. The sec. 1034 rollover provision was replaced by an expanded and revised sec. 121. - 4 - SEC. 1034. ROLLOVER OF
312.1(c) (2000). The entrance fee deposit base was “those deposits which the Federal Deposit Insurance Corporation * * * [estimated] to have a high probability of remaining with * * * [Metrobank] for a reasonable period of time following the * * * [conversion transaction], in excess of those deposits that would have remained in the * * * [SAIF
equirement for several reasons. First, she used money from a 2See also secs. 1221 through 1223 for the definition of a capital asset and related terms, and sec. 1(h) for the rate of tax imposed on long-term capital gains. 3Sec. 1034 was repealed by sec. 312 of the Taxpayer Relief Act of 1997, Pub. L. 105-34, 111 Stat. 836, generally effective for sales and exchanges after May 6, 1997. The sec. 1034 rollover provision was replaced by an expanded and revised sec. 121. - 5 - mortgage of the Compton
1.312-6, Income Tax Regs.; IRS Publication 589, Tax Information on S Corporations 14 (1994, for use in preparing 1993 returns) (“If a corporation has accumulated E&P, the retained earnings and accumulated E&P usually will not be the same because of the special rules for figuring retained earnings.”).14 Under current law, S corporatio
The entities incurred substantial recourse debt for the purchase and rehabilitation of the structures, which was financed through Maine Savings Bank and also through section 312 of the Housing Act of 1964, Pub.
rkette’s earnings and profits for 1983 through 1986 were insufficient to cover any of the determined constructive dividends. Thus, we do not redetermine the amounts of the relevant earnings and profits, nor do we address the “wrongful diversion” and sec. 312 issues dealt with in Hagaman v. Commissioner, 958 F.2d 684, 692 (wrongful diversion), 695 (sec. 312) (6th Cir. 1992), affg. and remanding T.C. Memo. 1987-549. - 89 - economic benefits from the corporation without expectation of payment there