Return of Capital

Return of Capital means:
a distribution that is not paid out of the earnings and profits of a corporation. Rather, it is a return of the shareholder's investment in the stock of the company. A return of capital is first applied to reduce the basis of the shareholder's stock to zero. Any distribution in excess of that amount is taxed as a capital gain. If a corporation has current earnings and profits or accumulated earnings and profits, distributions are treated as taxable dividends to such extent, not as returns of capital. Former IRC (check if this IRC provision is current here) §301.

See also Capital Gain in the American Legal Encyclopedia and Capital Gain in the World Legal Encyclopedia.

See Dividend in the American Legal Encyclopedia and Dividend in the World Legal Encyclopedia.

Description and Definition of Return of Capital

A distribution that is not subject to tax unless the distribution exceeds your investment. The distribution is a return of a portion of your investment.

Resources

See Also

Further Reading

• Return of Capital in the West's Tax Law Dictionary
• Return of Capital in “A Dictionary of Taxation”