We are now starting to get into more complexity.
So just at a high level, a corporation maintains two accounts; retained earnings and earnings and profits (E&P).
Most small businesses have no idea about the E&P concept and certainly do not maintain this account. There are differences between retained earnings and E&P.
To the extent that a corporation makes a cash distribution AND has E&P, the distribution will be treated as a dividend. If there is no E&P, then the distribution will be considered a return of capital.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
