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Exam 19: Corporations: Distributions Not in Complete Liquidation

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Question 81

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Lucinda owns 1,100 shares of Blackbird Corporation stock at a time when Blackbird has 2,000 shares of stock outstanding. The remaining shareholders are unrelated to Lucinda. What is the minimum number of shares Blackbird must redeem from Lucinda so that the transaction will qualify as a disproportionate redemption?

A) 220.
B) 393.
C) 484.
D) 880.
E) None of the above.

F) C) and D)
G) A) and B)

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Question 82

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Steve has a capital loss carryover in the current year of $30,000. He owns 3,000 shares of stock in Carmine Corporation, which he purchased six years ago for $20 per share. In the current year, Carmine Corporation (E & P of $750,000) redeems all of his shares for $140,000. Steve is in the 33% tax bracket. What is his income tax liability with respect to the corporate distribution if: a. The redemption qualifies for sale or exchange treatment, and Steve has no other transactions in the current year involving capital assets? b. The redemption does not qualify for sale or exchange treatment?

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a. Steve will have a capital gain of $80...

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Question 83

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Regardless of any deficit in current E & P, distributions during the year are taxed as dividends to the extent of accumulated E & P.

Hazel, Emily, and Frank, unrelated individuals, own all of the stock in Wren Corporation (E & P of $1.2 million) as follows: Hazel, 1,500 shares; Emily, 300 shares; and Frank, 200 shares. Wren redeems 900 of Hazel's shares (basis of $210,000) for $625,000. With respect to the distribution in redemption of the stock:

Which one of the following statements about property distributions is false?

Cash distributions received from a corporation with a positive balance in accumulated E & P at the beginning of the year will be taxed as dividend income.

A deficit in current E & P is treated as occurring ratably during the year, unless the taxpayer can show otherwise.

If a stock dividend is taxable, the shareholder's basis in the newly received shares is equal to the fair market value of the shares received in the distribution.

Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2014. -Domestic production activities deduction claimed in 2014.

Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to determine current E & P. -Dividends received deduction.

Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to determine current E & P. -Charitable contribution carryforward deducted in the current year.

Constructive dividends have no effect on a distributing corporation's E & P.

Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2014. -Loss on sale between related parties in 2014.

What are the requirements that must be satisfied for a distribution to qualify under § 302(b)(2) as a disproportionate redemption?

Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2014. -Premiums paid on key employee life insurance policy (assume no increase in cash surrender value of policy) in 2014.

In general, how are current and accumulated earnings and profits allocated to corporate distributions?

What is a constructive dividend? Provide several examples of the term.

In the current year, Quail Corporation distributed installment notes payable in redemption of some of its shares. Quail incurred the following expenditures in connection with the redemption: accounting fees of $7,000 and legal fees of $8,000. In addition, Quail paid $10,000 of interest expense on the installment notes payable. The distribution was a qualifying stock redemption. How much of the $25,000 is deductible in the current year?

To carry out a qualifying stock redemption, Turaco Corporation (E & P of $800,000) transfers land held for investment purposes to Aida, a shareholder. The land had a basis of $250,000, a fair market value of $400,000, and is subject to a $300,000 liability. Aida has a basis of $70,000 in the shares redeemed. Which of the following is a correct statement regarding the tax consequences of this redemption?

Kite Corporation, a calendar year taxpayer, has taxable income of $360,000 for 2015. Among its transactions for the year are the following: Collection of proceeds from insurance policy on life of corporate officer (in excess of cash surrender value) $ 9,000 Realized gain (not recognized) on an involuntary conversion 10,000 Nondeductible fines and penalties 21,000 Disregarding any provision for Federal income taxes, determine Kite Corporation's current E & P for 2015.