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Exam 13: Corporations: Earnings Profits and Distributions

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Question 21

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On January 1,Gold Corporation (a calendar year taxpayer)has E & P of $30,000 and generates no additional E & P during the year.On March 31,the corporation distributes $40,000 to its sole shareholder,Wyatt (basis in stock of $8,000).Determine the effect of the distribution on Wyatt's taxable income and stock basis.

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Wyatt recognizes dividend income of $30,...

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Question 22

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

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Question 23

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Property distributed by a corporation as a dividend is subject to a liability in excess of its basis.For purposes of determining gain on the distribution,the basis of the property is treated as being not less than the amount of liability.

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.

Constructive dividends do not need to satisfy the legal requirements for a dividend as set forth by applicable state law.

Under certain circumstances,a distribution can generate (or add to)a deficit in E & P.

Renee,the sole shareholder of Indigo Corporation,sold her stock to Chad on July 1 for $180,000.Renee's stock basis at the beginning of the year was $120,000.Indigo made a $60,000 cash distribution to Renee immediately before the sale,while Chad received a $120,000 cash distribution from Indigo on November 1.As of the beginning of the current year,Indigo had $26,000 in accumulated E & P,while current E & P (before distributions) was $90,000.Which of the following statements is correct?

Tungsten Corporation,a calendar year cash basis taxpayer,made estimated tax payments of $800 each quarter in 2015,for a total of $3,200.Tungsten filed its 2015 tax return in 2016 and the return showed a tax liability $4,200.At the time of filing,March 15,2016,Tungsten paid an additional $1,000 in Federal income taxes.How does the additional payment of $1,000 impact Tungsten's E & P?

A corporation that distributes a property dividend must reduce its E & P by the adjusted basis of the property less any liability on the property.

Federal income tax paid in the current year must be subtracted from taxable income to determine E & P.

Maria and Christopher each own 50% of Cockatoo Corporation,a calendar year taxpayer.Distributions from Cockatoo are: $750,000 to Maria on April 1 and $250,000 to Christopher on May 1.Cockatoo's current E & P is $300,000 and its accumulated E & P is $600,000.How much of the accumulated E & P is allocated to Christopher's distribution?

Robin Corporation distributes furniture (basis of $40,000;fair market value of $50,000) as a property dividend to its shareholders.The furniture is subject to a liability of $55,000.Robin Corporation recognizes gain of:

If there is sufficient E & P,a distribution of nonconvertible preferred stock to common shareholders is taxable.

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

When computing E & P,taxable income is not adjusted for § 179 expense.

As a result of a redemption,a shareholder's interest (direct and indirect)in the corporation decreased from 80% to 55%.The redemption qualifies for sale or exchange treatment as a disproportionate redemption.

Ten years ago,Carrie purchased 2,000 shares in Osprey Corporation for $20,000.In the current year,Carrie receives a nontaxable stock dividend of 20 shares of Osprey preferred.Values at the time of the dividend are: $8,000 for the preferred stock and $72,000 for the common.Based on this information,Carrie's basis in the stock is:

Brett owns stock in Oriole Corporation (basis of $100,000) as an investment.Oriole distributes property (fair market value of $375,000;basis of $187,500) to him during the year.Oriole has current E & P of $25,000 (which includes the E & P gain on the property distribution) ,accumulated E & P of $100,000,and makes no other distributions during the year.What is Brett's capital gain on the distribution?

In general,if a shareholder's ownership interest is not diminished as a result of a stock redemption,the Code will treat the transaction as a sale or exchange.

When computing current E & P,taxable income must be adjusted for the deferred gain in a § 1031 like-kind exchange.