Exam 4: Corporate Nonliquidating Distributions

John owns 70% of the May Corporation stock and 60% of the June Corporation stock. John sells one-half of his interest in May Corporation to June Corporation for $45,000. The E&P accounts of May and June are $25,000 and $35,000, respectively. The result would be that

Maple Corporation distributes land to a noncorporate shareholder. Explain how the following items are computed: a) the amount of the distribution. b) the amount of the dividend. c) the basis of the land to the shareholder. d) the start of the holding period for the land. How would your answers change if the distribution was made to a corporate shareholder?

Current E&P does not include

Identify which of the following statements is true.

Which of the following transactions does not have the potential of creating a constructive dividend?

Why are stock dividends generally nontaxable? Under what circumstances are stock dividends taxable?

Tomika Corporation has current and accumulated earnings and profits of $0. Tomika distributes $10,000 to its sole shareholder, Alana. What are Tomika's earnings and profits after the distribution?

Identify which of the following increases Earnings & Profits.

On April 1, Delta Corporation distributes $120,000 in cash to each of its two equal shareholders, Sarah and Matt. At the time of the distribution, Delta's E&P is $160,000. Sarah's basis in her stock is $50,000 and Matt's basis in his stock is $20,000. How are the distributions characterized to Sarah and Matt? Be specific.

When computing E&P, Section 179 property must be expensed ratably over a five-year period, starting with the month in which it is expensed for Sec. 179 purposes.

Circle Corporation has 1,000 shares of common stock outstanding. Circle redeems 450 shares owned by Dennis for $75,000 in complete redemption of Dennis's interest. The redemption qualifies as a sale. When the redemption is made, Circle Corporation has $150,000 of current and accumulated E&P and paid-in capital of $50,000. The distribution reduces paid-in capital by

Identify which of the following statements is true.

A shareholder's basis in property distributed as a dividend is its fair market value.

Ace Corporation has a single class of stock outstanding. Alan owns 200 shares of the common stock, which he purchased for $50 per share two years ago. On April 10, of the current year, Ace Corporation distributes to its shareholders one right to purchase a share of common stock at $60 per share for each share of common stock held. At the time of the distribution, the common stock is worth $75 per share, and the rights are worth $15 per right. On September 10, Alan sells 100 rights for $2,000 and exercises the remaining 100 rights. He sells 60 of the shares acquired with the rights for $80 each on November 10. a) What is the amount and character of income Alan recognizes when he receives the rights? b) What is the amount and character of gain or loss Alan recognizes when he sells the rights? c) What is the amount and character of gain or loss Alan recognizes when he exercises the rights? d) What is the amount and character of gain or loss Alan recognizes when he sells the new common stock? e) What basis does Alan have in his remaining shares?

The gross estate of a decedent contains $2,000,000 cash and 100% of Davis Corporation stock worth $600,000. Funeral and administrative expenses and state death taxes allowable as estate tax deductions amount to $400,000. The estate owes no other liabilities. The decedent's Davis stock can be

Oreo Corporation has accumulated E&P of $8,000 at the beginning of the current year. During the year (a nonleap year), the corporation incurs a current E&P deficit of $18,250. The corporation distributes $11,000 on March 20th to Morris, its sole shareholder, who has a $9,000 basis for his stock. If the exact loss cannot be determined as of the date of distribution, the treatment of the distribution will be

Dave, Erica, and Faye are all unrelated. Each has owned 100 shares of News Corporation stock for five years and each has a $180,000 basis in those 100 shares. News Corporation's E&P is $720,000. News redeems all 100 of Dave's shares for $300,000, their FMV. a) What is the amount and character of Dave's recognized gain or loss? What basis do Erica and Faye have in their remaining shares? What effect does the redemption have on News's E&P? b) Assuming instead that Dave is Erica's son, answer the questions in part (a) again.

Dixie Corporation distributes $31,000 to its sole shareholder, Sally. At the time of the distribution, Dixie's E&P is $25,000 and Sally's basis in her Dixie stock is $10,000. Sally's basis in her Dixie stock after the distribution is

Corporations recognize gains and losses on the distribution of property to shareholders if the property's fair market value differs from its basis.

Identify which of the following statements is true.