Rev. Proc. 75-17

Section 1. Purpose.

.01 The purpose of this Revenue Procedure is to update and restate the instructions and guidelines contained in Rev. Proc. 65-10, 1965-1 C.B. 738, relating to corporate distributions and the determination of earnings and profits in order to provide corporations and their stockholders more certainty as to the taxable status of distributions.

.02 This Revenue Procedure incorporates the modifications made to Rev. Proc. 65-10 by Rev. Proc. 67-12, 1967-1 C.B. 589. Rev. Proc. 67-12 modified Rev. Proc. 65-10 to provide that the computation of a corporations current earnings and profits, furnished to the Internal Revenue Service with the corporation's Schedule A (Corporate Report of Nontaxable Dividends), Form 1096, Annual Summary and Transmittal of U.S. Information Returns, should be based on the return as filed thus eliminating a determination based upon a bona fide estimate of current earnings and profits.

.03 In addition, this Revenue Procedure contains the following changes to Rev. Proc. 65-10:

(1) Section 1.02 reflects the current title of Form 1096.

(2) Sections 2.01, 6.022, 6.025 are revised to conform with the modification of Rev. Proc. 65-10 by Rev. Proc. 67-12.

(3) Section 5.04 has been deleted as partly ambiguous and the substantive material concerning section 381 of the Internal Revenue Code of 1954 is covered by existing regulations.

(4) Section 6.035(a) through (d) has been revised to incorporate the requirements of the consolidated return regulations.

(5) A new Section 6.037 has been added to show that beginning after June 30, 1972 depreciation for earnings and profits purposes must be computed on the straight line method under section 312 of the Code.

(6) Section 6.0310 has been revised to require additional data concerning redemptions of stock.

(7) Section 7.04 has been deleted since an analysis of accumulated earnings and profits as of the date of distribution appears in Rev. Rul. 74-164, 1974-1 C.B. 74.

(8) Sections 8 and 9 have been revised to conform with the modification of Rev. Proc. 65-10 by Rev. Proc. 67-12 and to include instructions for filing of data with the appropriate Service Center in liquidations under section 333 of the Code.

(9) Section 10 has been updated to show a new address for submitting inquires in connection with this Revenue Procedure.

Sec. 2. Effect on Stockholders' Federal Income Tax Returns.

The Service will process the returns of stockholders receiving corporate distributions claimed to be partly or wholly nontaxable as dividends by accepting or correcting determinations made by the corporation, if such determinations are based upon the corporation's return as filed.

Sec. 3. Authority.

Section 6042(d) of the Code provides, in effect, that a corporation shall furnish, upon request, data necessary for the Service to determine the corporation's available earnings and profits, the names and addresses of the stockholders entitled to such earnings and profits, and the amount paid to each.

Sec. 4. Scope.

This procedure is applicable (1) to distributions under section 301 of the Code made by a corporation to its stockholders with respect to stock which are deemed to be wholly or partly nontaxable as dividends, (2) to the computation of earnings and profits of liquidated corporations whose stockholders have elected to claim the benefits of section 333, and (3) any time it is necessary to determine the amount of earnings and profits for the purposes of section 316(a)(1) and (2).

Sec. 5. Background and General.

.01 The taxable status of corporate distributions in the hands of the stockholder is determined by the source of the distribution.

.02 Under all Revenue Acts since 1936 (section 316 of the Code and similar provisions of prior Acts), a "dividend" means any distribution of property made by a corporation to its stockholders--

1. out of earnings and profits accumulated after February 28, 1913, available at the date of payment, or

2. out of earnings and profits of the current year in which paid.

However, under the Revenue Acts from 1913 to 1936 (with certain exceptions in the years 1913-1917), a corporate distribution was taxable as a dividend only to the extent of (1) above. That portion of the distribution which is not a "dividend" but which exceeds the adjusted basis of the stock in the hands of the stockholder is treated as gain from the sale or exchange of property. However, to the extent that such gain is out of increase in value accrued before March 1, 1913, and subsequently realized, it is exempt from tax.

.03 To determine the source of distributions it is necessary to make computations from March 1, 1913, or date of incorporation, whichever is later, of:

1. the current earnings and profits of each year;

2. the earnings and profits accumulated after February 28, 1913, (referred to as post-1913 earnings and profits);

3. the March 1, 1913 earned surplus;

4. the appreciation at March 1, 1913, subsequently realized.

.04 The data herein described is needed in order to enable the Service to test the accuracy of the corporation's determinations and minimize the time required for verification. Use of the format illustrated in section 11 will also facilitate timely verifications. For example, this format permits adjustments to be reflected in the appropriate year and easily carried forward when necessary. In the same manner computations can be readily updated for later years.

.05 To provide additional assistance to taxpayers, it is contemplated that substantive rulings and other technical information which affect or relate to earnings and profits will be published in the Internal Revenue Bulletin from time to time.

Sec. 6. Information Needed.

.01 General Information.

1 The name, address and date of incorporation of the payor corporation and of any other corporation whose assets were transferred to the payor corporation or its predecessors either in a tax free reorganization or tax free corporate liquidation. If transfers are involved, the date of each.

2 The name, address and date of incorporation of any corporation which distributed stock of any of the corporations identified in section 6.011, as a tax free distribution within the meaning of section 355 of the Code together with details of the transactions and dates of distribution.

3 The office of the Internal Revenue Service where all corporations identified in sections 6.011 and 6.012 filed Federal income tax returns and the name and address under which returns were filed for all years since incorporation.

.02 Computations and suggestions as to format.

1 A detailed year-by-year analysis of post-1913 earnings and profits (from date of incorporation or March 1, 1913, whichever is later, through the latest year for which a return has been filed) reconciled with the beginning and ending surplus shown on the balance sheets on Schedule L of the returns. Revenue Agent's adjustments and other Schedule M entries should be shown in detail; also the date distributions were paid, class of stock on which paid and amount paid per share. When payment is made other than in cash, describe the type of property distributed, show its cost or other basis and its fair market value. In addition, show the number of shares of stock held by (1) corporate and (2) noncorporate shareholders with respect to which the distribution in kind was made. See Exhibit A in Section 11. See, however, section 6.05 when the required data has been submitted for prior years.

2 A computation of the earnings and profits of the current year based on the data used in the preparation of the corporate return.

3 A summary of the differences reconciling the final amount of earnings and profits and the surplus on the balance sheet on the return for the given period. See Exhibit B in section 11.

4 Schedule of supporting detail of differences shown on the summary of year-by-year differences. Items which offset each other in the year-by-year analysis should not be shown in this summary, even though offset in different years. In any one year, items of the same category (for example a number of items affecting depreciation) may be grouped and only the balance shown. See Exhibit B in section 11.

5 Tax basis balance sheet. Show application of the net differences to balance sheet items as shown on Schedule L of corporate return. Explain any further adjustments necessary to arrive at tax basis balance sheet. See Exhibits B and C in section 11.

.03 Specific and explanatory information.

1 A detailed analysis of the capital stock account and the paid-in surplus and capital surplus accounts.

2 A detailed analysis of any surplus reserves (that is other accounts where entries have been made which do not affect taxable income but may affect earnings and profits).

3 List of any corporate distributions received which were not treated as taxable dividends.

4 If the corporation was formed prior to March 1, 1913, or has assets with a basis determined by reference to their fair market value at March 1, 1913, a year-by-year analysis of pre-March 1, 1913 appreciation subsequently realized within the meaning of section 312 of the Code or similar provisions of prior laws. Furnish balance sheets as of March 1, 1913, showing cost, value of assets, and the amount of such appreciation.

5 For each year for which a consolidated return has been filed, submit complete details with respect to:

(a) intercompany profits and losses which were eliminated from consolidated taxable income (only for consolidated return years beginning before January 1, 1966);

(b) computation of the allocation of consolidated Federal income tax and the method used. If elections have been made under section 1.1502-33 of the Income Tax Regulations in conjunction with section 1.1552-1, give types and dates of elections.

(c) treatment by members of any payment made for Federal income taxes where such payment differs from amounts computed, as prescribed under the method of allocation elected. If an intercompany agreement is in effect, explain its provisions and submit written evidence of such agreement.

(d) separate corporate taxable income and surplus of all corporations joining in the filing of the consolidated return, reconciled to the consolidated return.

6 The amount of depletion allowable in computing earnings and profits if percentage or discovery depletion is a factor in computing taxable income. When the amount of depletion that has been used in the computation of taxable income differs from that which is appropriate for computing earnings and profits, furnish a computation of depletion based on cost that must be used for earnings and profits purposes (see section 1.312-6(c)(1) of the regulations).

7 For taxable years beginning after June 30, 1972, if accelerated depreciation was used for Federal income tax purposes, a summary of depreciation computed on the straight line method and a schedule reconciling any difference between such amount and the amount of depreciation claimed for tax purposes (see section 312 of the Code). If an adjustment to earnings and profits is required due to the disposition of property on which depreciation for earnings and profits was different than for tax purposes, furnish detailed reconciliation.

8 Where earnings and profits have been allocated in divisive reorganizations under section 368(a)(1)(D) of the Code, explain the method used for allocation and the rationale supporting such method.

9 Journal entries recording acquisitions in tax free liquidations under section 332 of the Code and reorganizations under section 368(a)(1).

10 If the corporation has outstanding more than one class of stock, furnish a statement of preferences attaching to each class. If stock has been redeemed, with respect to each class, the date(s) of redemption, the number of such shares redeemed and their percentage of the total, and other pertinent data.

.04 The computations and information specified in 6.02 and 6.03 should be furnished for all corporations identified in sections 6.011 and 6.012.

.05 Where the required data has been submitted for prior years it will be necessary only to extend the schedules previously submitted. However, revised computations or schedules of adjusted balances are to be furnished showing the effects of any changes to prior balances and distributions required because of revenue agents' adjustments, errors, court decisions, etc.

Sec. 7. Suggested Format.

.01 Use of the format as shown in Exhibits A through C of section 11 will greatly facilitate timely Service verification of corporate determinations. Legible, longhand work sheets on columnar paper, facsimiles or photocopies are preferable. However, if typewritten work sheets are furnished it is very important for ease of verification that they be prepared on lined paper.

.02 Items in the year-by-year analysis should be reflected in the order shown in Exhibit A of section 11. The opening and closing amounts in Schedule M columns should agree with the surplus shown in the balance sheets in Schedule L of the corporate return. Revenue agents' adjustments should follow in the earnings and profits columns immediately after taxable income per the return and the column subtotaled to show the corrected taxable income to facilitate verification. Items should be entered on the same line in Schedule M and earnings and profits columns only if they are exactly the same amount; otherwise, the amounts should be listed on separate lines to facilitate compiling the differences between the book surplus and earnings and profits.

.03 When adjustments affecting earnings and profits for earlier years will not affect the taxable status of distributions in intervening years they may be reflected in later years but footnoted to indicate the year to which they properly relate. In the earlier year, notation should be made of the subsequent year in which the adjustment is reflected.

.04 The differences in Exhibit B (See section 6.023) should be keyed to the adjustment column on Exhibit C--Balance Sheets. Full explanation should be made for all other adjustments made to arrive at the tax basis balance sheet.

.05 The various sources of distributions which must be maintained in separate computations (for example, pre-1913 appreciation or deficits of transferor corporations) may be shown in separate columns on the year-by-year analysis of post-1913 earnings and profits or may be shown in separate exhibits.

Sec. 8. When and Where to File Data.

When a corporation determines that its distributions are partly or wholly not taxable as dividends, it must file Schedule A (Form 1096), Corporate Report of Nontaxable Dividends on or before February 28 of the year following the calendar year of payment, with the Director, Income Tax Division, Attention: T:C:C:1:E&P, 1111 Constitution Ave., Washington, D.C. 20224. If the corporation has filed its return (Form 1120), it must file with Schedule A the required supporting computations of earnings and profits. Exception--A corporation liquidated under section 333 of the Code should file its earnings and profits data with the Internal Revenue Service Office where its final return has been or will be filed.

Sec. 9. Request for Additional Time for Supplying Data.

If a corporation has not filed its return (Form 1120) it may request an extension of time for filing the required supporting data by filing Schedule A and stating in "Item 7. Extension--" the additional time needed for such purpose. Exception--A corporation liquidated under section 333 of the Code should direct its request for an extension of time to the Internal Revenue Service Office where the final return has been or will be filed.

Sec. 10. Inquiries.

Inquiries in connection with this Revenue Procedure should be submitted to the addresses shown in Sec. 8. above. Information may also be obtained by telephoning the Earnings and Profits Group in Washington, D.C., area Code 202, 964-4464.

Sec. 11. Example of a Computation--Exhibits A Through C.

Exhibit A--P Corporation Year-by-year Analysis of Earnings and Profits.

Exhibit B--P Corporation Summary of Year-by-year Differences Surplus and Earnings and Profits and Schedule of Supporting Detail.

Exhibit C--P Corporation Balance Sheets--December 31, 1974.

Sec. 12. Effect on Other Documents.

This Revenue Procedure supersedes Rev. Proc. 65-10, 1965-1 C.B. 738, and Rev. Proc. 67-12, 1967-1 C.B. 589.

                              Exhibit A