The final item identified above – the shareholder’s basis for their stock – is generally not an issue for the shareholders of a closely held C corporation. the shareholder’s holding period and adjusted basis for their shares of stock in the distributing corporation.the “earnings and profits” of the corporation – basically, a running account that the corporation must maintain from its inception through the present, which indicates the net earnings of the corporation that are available for distribution to its shareholders and.the amount distributed by the corporation where the distribution is made in-kind rather than in cash – in other words, determining the “fair market value” of the property distributed.In most cases, the difficulty stems from the shareholder’s inability to establish the following elements: Unfortunately for many taxpayers, establishing the proper tax treatment for a “dividend” distribution may be anything but simple, which may lead to adverse economic consequences. A distribution of property made by a regular “C” corporation to an individual shareholder with respect to the corporation’s stock (a) will be treated as a dividend to the extent it does not exceed the corporation’s earnings and profits (b) any remaining portion of the distribution will be applied against, and will reduce, the shareholder’s adjusted basis for the stock, to the extent thereof – i.e., a tax-free return of the shareholder’s investment in the stock and (c) any remaining portion of the distribution will be treated as capital gain from the sale or exchange of the stock.