Skip to content

General education, not advice for your situation.

Carry Forward Learning Start here Intern0 XP

Treasury Regulations · 26 CFR

§ 1.312-1. Adjustment to earnings and profits reflecting distributions by corporations.

In effect eCFR current as of October 15, 2026

Regulation text, no changes From the eCFR, current as of October 15, 2026. The eCFR is an authoritative but unofficial editorial compilation of the Code of Federal Regulations; the official text is the annual CFR on govinfo. Compare it with this section on ecfr.gov (external site) or the official annual CFR on govinfo (external site).

Regulation under 26 U.S.C. § 312

Cite as 26 CFR § 1.312-1

At a glance

Read from the text and its source citation. Not part of the regulation.

Status
In the current eCFR
Source
T.D. 6500, 25 FR 11402, Nov. 26, 1960; 25 FR 14021, Dec. 21, 1960; T.D. 9989, 89 FR 17606, Mar. 11, 2024, unless otherwise noted.
Issued under
26 U.S.C. § 312
Length
371 words · about 2 min to read
Cross-references
cites 3 Code sections and 1 regulation; cited by 0
(a) In general, on the distribution of property by a corporation with respect to its stock, its earnings, and profits (to the extent thereof) shall be decreased by—
(1) The amount of money,
(2) The principal amount of the obligations of such corporation issued in such distribution, and
(3) The adjusted basis of other property.

For special rule with respect to distributions to which section 312(e) applies, see § 1.312-5.

(b) The adjustment provided in section 312(a)(3) and paragraph (a)(3) of this section with respect to a distribution of property (other than money or its own obligations) shall be made notwithstanding the fact that such property has appreciated or depreciated in value since acquisition.
(c) The application of paragraphs (a) and (b) of this section may be illustrated by the following examples:
Example 1.

Corporation A distributes to its sole shareholder property with a value of $10,000 and a basis of $5,000. It has $12,500 in earnings and profits. The reduction in earnings and profits by reason of such distribution is $5,000. Such is the reduction even though the amount of $10,000 is includible in the income of the shareholder (other than a corporation) as a dividend.

Example 2.

The facts are the same as in Example (1) above except that the property has a basis of $15,000 and the earnings and profits of the corporation are $20,000. The reduction in earnings and profits is $15,000. Such is the reduction even though only the amount of $10,000 is includible in the income of the shareholder as a dividend.

(d) In the case of a distribution of stock or rights to acquire stock a portion of which is includible in income by reason of section 305(b), the earnings and profits shall be reduced by the fair market value of such portion. No reduction shall be made if a distribution of stock or rights to acquire stock is not includible in income under the provisions of section 305.
(e) No adjustment shall be made in the amount of the earnings and profits of the issuing corporation upon a disposition of section 306 stock unless such disposition is a redemption.

Other regulations under § 312

Cross-references

Computed from the citations in the text of 26 CFR.

Code sections it cites

Regulations it cites

Where it sits in 26 CFR

  1. Subchapter A Income tax
  2. Part 1 Income taxes
  3. Effects on corporation

Nearby sections