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C corporations and their shareholders

TCP Chapter 5 · Area II · Blueprint II.A.2

Money and property move between a C corporation and its owners all the time: owners put property in, the corporation pays dividends, hands out property, lends money to its owners and, one day, liquidates. Each move has a tax result for both sides, and the Blueprint asks you to calculate them: gain and basis on contributions, earnings and profits, cash and property distributions, liquidations and shareholder loans. Tessa and Leo follow Kestrel Outdoor Gear, Inc., a calendar-year C corporation owned 60% by Marcus Webb and 40% by Joanna Reyes, from the day it is formed to the day a subsidiary is wound up. Figures are for 2026.

In this chapter

1. Contributing property to a corporation: §351
2. Earnings and profits
3. Cash distributions and the ordering rules
4. Property distributions
5. Liquidating distributions
6. Loans between shareholders and the corporation
7. Constructive dividends and debt versus equity

This chapter has 7 lessons, 50 practice MCQs with explanations and 20 simulations, plus flashcards and a recall sheet.

What this chapter covers

• §351 contributions, boot and §357(c)
• nonliquidating and liquidating distributions of property
• E&P
• shareholder loans, imputed interest and constructive dividends

Chapter 4: Personal financial planning · Chapter 6: C corporation losses and consolidated returns