Common use of Distributions that differ in timing Clause in Contracts

Distributions that differ in timing. (i) S, a corporation, has two equal share- holders, A and B. Under S’s bylaws, A and B are entitled to equal distributions. S distrib- utes $50,000 to A in the current year, but does not distribute $50,000 to B until one year later. The circumstances indicate that the difference in timing did not occur by reason of a binding agreement relating to distribu- tion or liquidation proceeds. (ii) Under paragraph (l)(2)(i) of this section, the difference in timing of the distributions to A and B does not cause S to be treated as having more than one class of stock. How- ever, section 7872 or other recharacterization principles may apply to determine the appro- priate tax consequences.