Utilities—return of capital distributions.

(a) Distributions by corporations which are treated as a return of capital for Federal income tax purposes shall also be treated as a return of capital for Pennsylvania personal income tax purposes and therefore not taxable as dividends under section 303(a)(5) of the TRC (72 P. S. § 7303(a)(5)).

(b) That portion of a distribution which is a return of capital shall be applied against and shall reduce the adjusted basis of the stock. That portion of a distribution which is a return of capital, to the extent it exceeds the adjusted basis of the stock, shall be treated as gain or income from the disposition of property.

(c) To the extent that a distribution which was a return of capital was previously taxed as dividend income to the recipient under prior Department policy, the recipient need not reduce the adjusted basis of the stock.