Buy/Sell Agreement for a Family C Corporation With Accumulated E&PBuy/Sell Agreement for a Family C Corporation With Accumulated E&P
What happens when a stockholder with earnings and profits wants to sell his stock?
There are a number of situations in which a stockholder in a family C corporation with accumulated earnings and profits (E&P) wants to sell his stock. Here are the tax consequences.
Tax Aspects
In a C corporation, profits are taxed to the corporation. The after-tax profits that remain in the corporation are classified as accumulated E&P. If they’re subsequently distributed to a stockholder, the stockholder will pay a dividend tax (maximum 15 percent to 20 percent, depending on income) on the deduction amount. There’s also a potential 3.8 percent surtax, again depending on the income of the shareholder.
In a pass-through entity (partnership or S corporation), there’s only one tax to be paid. And, the owners pay the income tax on their shar...
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