16 NONLIQUIDATING DISTRIBUTIONS CHAPTER 4 in-first-out (FIFO) method rather than the last-in-first-out (LIFO) method. 44 It should be apparent by now that earnings and profits is simply a tax accounting concept designed to better measure a corporation's true financial results. It is an artificial "account created by the Code-not an actual bank account or liquid fund set aside by the corporation for the payment of dividends. There is no statute of limitations on earnings and profits issues, and a corporation sometimes will face the onerous task of reconstructing many years of financial history in order to determine the tax consequences of a current distribution.45 PROBLEM X Corporation is a cash method, calendar year taxpayer. During the current year, X has the following income and expenses: $20,000 $10,250 $ 3,000 $ 5,000 Gross profits from sales Salaries paid to employees Tax-exempt interest received Dividends received from IBM.... Depreciation (X purchased 5-year property in the current year for $7,000; assume the property was fully expensed under 168(k)).. LTCG on a sale of stock LTCL on a sale of stock LTCL carryover from prior years. Estimated federal income taxes paid. $ 7,000 $ 2,500 $ 5,000 $ 1,000 $ 800 Determine X's taxable income for the current year and its current earnings and profits. C. DISTRIBUTIONS OF CASH Code: $$ 301(a)(c); 312(a); 316(a). Regulations: $$ 1.3011(a), (b); 1.316-2(a)-(c)