C Corp issues Dividend to Shareholder- Div ordinary only?

[Taxadvisor VA]

C Corp issues a dividend to shareholder. Is this divident classified as an ordinary dividend only? _______ Does it take on the qualified dividend classification as well? ____

C Corp is a privately held corporation- One owner.

Thanks,

Taxadvisor VA

[Roland Slugg]

Is this divident (sic - dividend) classified as an ordinary dividend only?

Yes, as long as it is paid out of current or accumulated E&P. (Code §316(a)) If all or part of the dividend exceeds current or accumulated E&P, then the excess is a return of capital resulting in a reduction of the shareholder's basis in his shares or even a capital gain to the extent it exceeds his basis.

Does it take on the qualified dividend classification as well?

Yes, if the shareholder meets the holding period requirement ... generally 60 days during the 121-day period beginning 60 days before the ex-dividend date (or the payment date if there is no ex-div date). (For preferred stock the holding period is 90 days during the 181-day period beginning 90 days before the ex-dividend date.) See Code §1(h)(11)(B)(i).