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How does a corporation compute earnings and profits (E&P)? W

1. How does a corporation compute earnings and profits (E&P)? What income is deferred to a later year when computing taxable income but is included in E&P in the current year? What deductions are allowed for taxable income purposes but denied for E&P?

2. Distinguish between current and accumulated earnings and profits. Why is it important to make this distinction?

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1. How does a corporation compute earnings and profits (E&P)? What income is deferred to a later year when computing taxable income but is included in E&P in the current year? What deductions are allowed for taxable income purposes but denied for E&P?

A corporation computes their earnings and profits by starting with their taxable income, and then adding income that has been excluded from taxable income, but that otherwise are a part of earnings and profit calculations. Common additions include tax-exempt interest, federal income tax refunds from previous years, as well as other income tax payments that have been received from governmental agencies from previous years, and any recovery of bad debt payments and other miscellaneous deductions from which there was no direct benefit received by the corporation. Also commonly included are life insurance contract ...

Solution Summary

How does a corporation compute earnings and profits (E&P)? What income is deferred to a later year when computing taxable income but is included in E&P in the current year? What deductions are allowed for taxable income purposes but denied for E&P?

2. Distinguish between current and accumulated earnings and profits. Why is it important to make this distinction?

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