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Generally, distributions by an S corporation making this election
are all treated as made first from earnings and profits under
section 1368(c)(2) and second from the accumulated adjustments
account under section 1368(b), (c)(1).
Section 1368(e)(3) does not contain a description of the
time or method in which an election to distribute earnings first
from earnings and profits can be made. However, the conference
report of the Technical Corrections Act of 1982, Pub. L. 97-448,
96 Stat. 2365, which added section 1368(e)(3)(A) to the Code,
states that "The procedures for electing dividend treatment will
generally be similar to the procedures of prior law (Treas. Reg.
sec. 1.1375-4(c)) allowing distributions out of earnings and
profits to be made prior to distributions of previously taxed
income." H. Conf. Rept. 97-986, at 22 (1982), 1983-1 C.B. 498,
502. Former section 1.1375-4(c), provided: "For any taxable
year for which such election is made, a statement of election
shall be filed with a timely return". T.D. 6432, 1960-1 C.B.
317, 345. The conference report indicates that Congress intended
that an election statement must be filed with a timely filed
return.
Proposed regulations clarifying the method of election under
section 1368 were issued in June 1992 prior to the due date or
filing of petitioners' and EMFI's respective tax returns for 1992
and fiscal year ended October 31, 1993. Section 1.1368-1(f)(5),
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Last modified: May 25, 2011