26 U.S.C. § 1368 — Distributions

> Official source: https://uscode.house.gov/quicksearch/get.plx?title=26&section=1368 — Internal Revenue Code text as published by the U.S. House Office of the Law Revision Counsel, USLM bulk release point 119-102, retrieved 2026-09-09. Cite as: IRC § 1368. **Statutory text only** — editorial notes, amendment history and effective-date notes are omitted; confirm currency for amendments after the release point.

(a) General rule A distribution of property made by an S corporation with respect to its stock to which (but for this subsection) section 301(c) would apply shall be treated in the manner provided in subsection (b) or (c), whichever applies.

(b) S corporation having no earnings and profits › (1) Amount applied against basis In the case of a distribution described in subsection (a) by an S corporation which has no accumulated earnings and profits—

(1) Amount applied against basis

The distribution shall not be included in gross income to the extent that it does not exceed the adjusted basis of the stock.

(c) S corporation having earnings and profits If the amount of the distribution exceeds the adjusted basis of the stock, such excess shall be treated as gain from the sale or exchange of property.

(c) S corporation having earnings and profits

In the case of a distribution described in subsection (a) by an S corporation which has accumulated earnings and profits—

(c) S corporation having earnings and profits › (2) Dividend That portion of the distribution which does not exceed the accumulated adjustments account shall be treated in the manner provided by subsection (b).

(2) Dividend

That portion of the distribution which remains after the application of paragraph (1) shall be treated as a dividend to the extent it does not exceed the accumulated earnings and profits of the S corporation.