Originally Posted by javierremos
. My question is that the C-Corp has Accumulated Earnings and whether the court decides me or my mom as the owner of the C-Corp, does the C-Corp have to distribute the dividends once I or my mom becomes the owner of the Company? Thanks.
I guess it depends; as you can see, The decision to pay out a portion of the c corp profits to shareholders is a complicated task; the articles of incorporation, the bylaws or both instruments grant the board of directors authority to decide to pay dividends to shareholders. Dividends are USUALLy paid only from a C-corp earnings ;it is not bad to issue dividends to reduce amt of accumulated earnings for the C corp.
ALSO, I am not sure if this is your current situation, not every C-corp with retained earnings faces accumulated earnings tax consequence; just those whose retained earnings are considered excessive to their business needs. Then the c corp. needs to distribute the dividends ;in general, any accumulated retained earnings in excess of what is reasonable can be seen as a means of tax avoidance. Even if the accumulated earnings are good for the stock, it’s still considered an avoidance measure, especially since shareholders can then liquidate their shares at a higher price and face the capital gains tax only on proceeds in excess of their tax basis in the stock. However, if you own a C corp and you pay yourself "excess compensation" in salary or bonus in order to distribute profits from your business earnings, the IRS MAY recharacterize some / all of it as a constructive dividend. And, they'll likely tack on a non-deductible penalty as well.