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This module continues the focus on corporate operations by examining the tax
effects of non-liquidating distributions to shareholders.
Again, the term non-liquidating refers to the fact that these distributions are not
made in an effort to wind up the affairs of the corporation.
Instead, these operating distributions are classified as dividends when
paid out of corporate earnings and profits, or E&P.
A tax concept reflecting the corporation's ability to pay dividends without
violating invested capital.
Along these lines, the lessons in this module examine the dividend and
non-dividend designation of cash, property, stock, and
constructive distributions.
You also learned about preferential tax rates available to individuals for
qualified dividends.
The next module will examine stock redemptions and partial liquidation.
A stock redemption is where a shareholder sells stock back
to the issuing corporation for cash or other property.
However, an important tax issue arises between redemptions
having the effect of a dividend.
That is, transactions that enable shareholders to withdraw cash or
other property while leaving their proportionate interest intact.
And redemptions that resemble sales,
because they significantly reduce the shareholder's proportionate interest.
You will learn about the tax effects of these situations for
both the corporation and its shareholders.