There are various ways to treat this distribution. It can be in the form of a dividend, the return of capital (the amount over earnings and profits - the shareholder must reduce his/her adjusted basis in the stock by this amount), and the capital gain which is the amount received in excess of shareholder’s basis.
It is important to notice that not all distributions are in money. Although most of them are in this form, there are other forms such as stock or other property.
There are some instances such as below-market loans where a corporation gives a shareholder a loan on which either no interest is charged or it is charged below the applicable federal rate. In this case, the interest which was not charged can be treated as a distribution to the shareholder. Another example is if a corporation cancels a shareholder’s debt without repayment by the shareholder. A third example arises when a corporation rents property from a shareholder and the rent is higher than what one would charge to a stranger. The excess is then treated as a distribution. Also, if a corporation pays an employee who is also a shareholder a salary that is unreasonably high considering the services actually performed by the shareholder-employee, the excess may also be treated like a distribution.