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Taxable distribution and current year E&P
I read that "as long as a corp has current E&P a distribution may be treated as having come from current E&P, even if the corp has a deficit balance in its accumulated E&P".
So for example: if a shareholder invested $35,000 and company ACME had $25,000 in current E&P and a $10,000 accumulated E&P deficit, then ACME made a distribution back to the shareholder of $35,000 - the first $25,000 would be considered coming out of current E&P (thus taxable) while the remaining $10,000 would be a return-of-capital (non-taxable).
Is this interpretation correct? So even though the shareholder has a cost-basis of $35,000 and receives a distribution of $35,000 - the first $25,000 would not be considered a return of capital for that original cost-basis?
