Computing Current E&P (1of2) E&P computed on annual basis at end of tax year Generally e&P based on the corps economic income instead of taxable income Adjustments to taxable income for permanent timing differences including use of different depreciation methods Refer to Table c4-1 6
6 Computing Current E&P (1 of 2) E&P computed on annual basis at end of tax year Generally E&P based on the corp’s economic income instead of taxable income Adjustments to taxable income for permanent & timing differences including use of different depreciation methods Refer to Table C4-1
Computing Current E&P (2of3) Taxable income Plus Income excluded from taxable income but included in E&P Income deferred to a later year when computing taxable income but included in E&P in the current year Continued on the next slide 7
7 Computing Current E&P (2 of 3) Taxable income Plus – Income excluded from taxable income but included in E&P – Income deferred to a later year when computing taxable income but included in E&P in the current year Continued on the next slide
Computing Current E&P (3of3) Plus or minus Income deduction items that must be recomputed when computing E&P Plus Deductions that reduce taxable income but are not allowed in computing E&P Minus Expenses losses that are not deductible in computing taxable income but that reduce E&P Equals current E&P(or current E&P deficit 8
8 Computing Current E&P (3 of 3) Plus or minus – Income & deduction items that must be recomputed when computing E&P Plus – Deductions that reduce taxable income but are not allowed in computing E&P Minus – Expenses & losses that are not deductible in computing taxable income but that reduce E&P Equals current E&P (or current E&P deficit)
Current vs Accumulated E&P(1 of 2y Current E&P computed on last day of the corp's tax year Distributions in excess of ce&P are allocated pro rata to ce&P regardless of payment date then deducted from Accumulated E&P in chronological order 9
9 Current vs Accumulated E&P(1 of 2) Current E&P computed on last day of the corp’s tax year Distributions in excess of CE&P are – allocated pro rata to CE&P regardless of payment date – then deducted from Accumulated E&P in chronological order
Current vs Accumulated E&P(2o2) Distributions in excess of e&P Cannot create an e&p deficit Normally produce ordinary income to s/h If CE&P is positive and beginning AE&P is a deficit distributions will produce ordinary income to s/h until CE&P reaches zero 10
10 Current vs Accumulated E&P(2 of 2) Distributions in excess of E&P –Cannot create an E&P deficit –Normally produce ordinary income to s/h – If CE&P is positive and beginning AE&P is a deficit, distributions will produce ordinary income to s/h until CE&P reaches zero