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Distributions from a C corp are taxed as follows: First, as a dividend to the extent of the corporation earnings and profits Earnings and profits are not the same as retained earnings Any distributions paid from earnings and profits would be considered a qualified dividend Distributions paid in excess of earnings and profits would be tax-free to the extent of the shareholder's capital (basis in the C corporation). Finally, distributions paid in excess of the above two items would be taxed as capital gain