Final answer:
The distinction between current and accumulated E&P is that current E&P considers the current year's earnings, while accumulated E&P includes all prior years' earnings after distributions. Current and accumulated E&P are measures used for corporate tax purposes in relation to dividend distribution, not solely for taxation or financial reporting.
Step-by-step explanation:
The distinction between current and accumulated Earnings and Profits (E&P) is an important concept in corporate taxation. Option A is the correct answer to the question: Current E&P reflects the earnings of the corporation for the current fiscal year, while accumulated E&P represents the cumulative total of a company's earnings since its inception, minus any dividends distributed to shareholders. Current E&P is a measure of the company's ability to pay dividends out of its current year income, whereas accumulated E&P represents the historical earnings power of the company after past dividends and losses are accounted for.
It is crucial to note that current E&P is not specifically "taxable" nor is accumulated E&P specifically "tax-exempt," as suggested in option B. Both are concepts used to determine a corporation's distributable earnings. Similarly, option C is incorrect because both current and accumulated E&P are used for tax reporting purposes, namely in the context of dividend distribution to shareholders. Finally, dividends do not inherently distinguish between current and accumulated E&P as suggested in option D; dividends can be paid from either.