E&P Earnings and Profits (U.S. Corporate Tax)

This video discusses the concept of E&P (Earnings and Profits) in corporate tax law. E&P is an account used to measure a corporation’s ability to pay dividends. E&P consists of two parts: current E&P and accumulated E&P. The calculation of E&P begins with taxable income and makes adjustments to arrive at current E&P. At the end of the tax year, any leftover (undistributed) current E&P is added to accumulated E&P. A corporate distribution can only be considered a dividend to the extent that the corporation has E&P greater than zero. A dividend distribution cannot make E&P negative; only losses can reduce E&P below zero.—
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