Question 1

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

Accepted Answer

A)  shareholder's rental of corporate property 
B)  compensation paid by a corporation to a shareholder- employee 
C)  purchase of corporate property by the shareholder 
D)  All of the above can result in a constructive dividend. 
A)  shareholder's rental of corporate property 
B)  compensation paid by a corporation to a shareholder- employee 
C)  purchase of corporate property by the shareholder 
D)  All of the above can result in a constructive dividend. D

Question 2

Joshua owns 100% of Steeler Corporation's stock. Joshua's basis in the stock is $8,000. Steeler Corporation has E&P of $40,000. If Steeler Corporation redeems 60% of Joshua's stock for $50,000, Joshua must report dividend income of

Accepted Answer

A)  $0. 
B)  $40,000. 
C)  $8,000. 
D)  $50,000. 
A)  $0. 
B)  $40,000. 
C)  $8,000. 
D)  $50,000. B

Question 3

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

Accepted Answer

A)  $11,000 return of capital. 
B)  $4,100 dividend and a $6,900 tax free return of capital. 
C)  $8,000 dividend and a $3,000 return of capital. 
D)  $4,100 dividend and a $6,900 capital gain. 
A)  $11,000 return of capital. 
B)  $4,100 dividend and a $6,900 tax free return of capital. 
C)  $8,000 dividend and a $3,000 return of capital. 
D)  $4,100 dividend and a $6,900 capital gain. B

Question 4

Identify which of the following statements is true.

Accepted Answer

A)  Attribution rules do not apply to qualified Sec. 303 stock redemptions. 
B)  If a stock redemption is made by an estate following the decedent's death, the redemption may receive capital gains treatment only if the money is actually used to pay the death taxes. 
C)  The value of decedent's stock satisfies the Sec. 303 minimum if it is less than 35% of the decedent's gross estate. 
D)  All of the above are false. 
A)  Attribution rules do not apply to qualified Sec. 303 stock redemptions. 
B)  If a stock redemption is made by an estate following the decedent's death, the redemption may receive capital gains treatment only if the money is actually used to pay the death taxes. 
C)  The value of decedent's stock satisfies the Sec. 303 minimum if it is less than 35% of the decedent's gross estate. 
D)  All of the above are false.

Question 5

Tia receives a $15,000 cash distribution from Main Corporation in March of the current year. Main has $6,000 of accumulated E&P at the beginning of the year and $12,000 of current E&P. Main also distributed $15,000 in cash to Betty, who purchased all 300 shares of Main stock from Tia in June of the current year. What tax issues should be considered with respect to the distributions paid to Tia and Betty?

Accepted Answer

• Since the two cash distributions excee

Question 6

Identify which of the following statements is true.

Accepted Answer

A)  If the stock redemption proceeds are used to pay either the estate's funeral and administrative expenses or death taxes, the redemption can qualify for capital gains treatment under Sec. 303. 
B)  Only stock included in the decedent's gross estate can be redeemed under the Sec. 303 provisions. 
C)  Usually, a stock redemption qualifying under Sec. 303 as a redemption to pay death taxes will result in little or no gain to the redeeming shareholder. 
D)  All of the above are true. 
A)  If the stock redemption proceeds are used to pay either the estate's funeral and administrative expenses or death taxes, the redemption can qualify for capital gains treatment under Sec. 303. 
B)  Only stock included in the decedent's gross estate can be redeemed under the Sec. 303 provisions. 
C)  Usually, a stock redemption qualifying under Sec. 303 as a redemption to pay death taxes will result in little or no gain to the redeeming shareholder. 
D)  All of the above are true.

Question 7

Boris owns 60 of the 100 shares outstanding of Bread Corporation stock and 80 of the 100 shares of Butter Corporation stock. His basis in the Bread shares is $10,000 and his basis in his Butter shares is $5,000. Boris sells 30 of his Bread Corporation shares to Butter Corporation for $25,000. Bread Corporation has E&P of $20,000 and Butter Corporation has E&P of $40,000. In applying the substantially disproportionate test to determine if this is a sale or a dividend, Boris is treated as owning how many shares of Bread after the sale?

Accepted Answer

A)  30 shares 
B)  80 shares 
C)  54 shares 
D)  60 shares 
A)  30 shares 
B)  80 shares 
C)  54 shares 
D)  60 shares

Question 8

The Sec. 318 family attribution rules can be waived for purposes of the Sec. 302(b)(3) complete termination rules even though the redeeming shareholder is a creditor of the corporation.

Accepted Answer

A) True 
 B)False

Question 9

Identify which of the following statements is true.

Accepted Answer

A)  A stock redemption that qualifies as substantially disproportionate is a safe harbor for capital gain treatment. 
B)  Stock ownership attributed to a corporation from one of its shareholders cannot be attributed to another of the corporation's shareholders under the Sec. 318 attribution rules. 
C)  Under the attribution rules relating to stock redemptions, a person who has an option to purchase stock is considered to own the stock. 
D)  All of the above are true. 
A)  A stock redemption that qualifies as substantially disproportionate is a safe harbor for capital gain treatment. 
B)  Stock ownership attributed to a corporation from one of its shareholders cannot be attributed to another of the corporation's shareholders under the Sec. 318 attribution rules. 
C)  Under the attribution rules relating to stock redemptions, a person who has an option to purchase stock is considered to own the stock. 
D)  All of the above are true.

Question 10

What is a constructive dividend? Under what circumstances are constructive dividends most likely to arise?

Accepted Answer

A constructive dividend (or undeclared d

Question 11

In the current year, Red Corporation has $100,000 of current and accumulated E&P. On March 2, Red Corporatio distributes to Randy, a shareholder, a parcel of land (a capital asset) having a $60,000 FMV. The land has a $30,00 adjusted basis (for both tax and E&P purposes) to Red Corporation and is subject to an $8,000 mortgage, which R assumes. Assume a 34% marginal corporate tax rate.
a) What is the amount and character of the income Randy recognizes as a result of the distribution?
b) What is Randy's basis for the land?
c) What is the amount and character of Red Corporation's gain or loss as a result of the distribution?
d) What effect does the distribution have on Red Corporation's E&P?

Accepted Answer

a) Randy receives a taxable dividend of

Question 12

Perch Corporation has made paint and paint brushes for the past ten years. Perch Corporation is owned equally by Arnold, an individual, and Acorn Corporation. Perch Corporation has $100,000 of accumulated and current E&P. Both Arnold and Acorn Corporation have a basis in their stock of $10,000. Perch Corporation discontinues the paint brush operation and distributes assets worth
$10,000 each to Arnold and Acorn Corporation in redemption of 20% of their stock. Due to the distribution, Arnold and Acorn Corporation must report:

Accepted Answer

A)  $$\begin{array} { | l | l | } 
\hline \text { Arnold } & \text { Acorn Corporation } \
\hline \$ 10,000 \text { dividend } & \$ 10,000 \text { dividend } \
\hline
\end{array}$$ 
B)  $\begin{array}{|l|l|}
\hline \text { Arnold } & \text { Acorn Corporation } \
\hline \$ 10,000 \text { dividend } & \$ 8,000 \text { capital gain }\\hline
\end{array}$ 
C) 
$\begin{array}{|l|l|}
\hline \text { Arnold } & \text { Acorn Corporation } \
\hline \$ 8,000 \text { capital gain } & \$ 8,000 \text { capital gain }\\hline
\end{array}$ 
D) 
$\begin{array}{|l|l|}
\hline \text { Arnold } & \text { Acorn Corporation } \
\hline \$ 8,000 \text { capital gain } & \$ 10,000 \text { dividend }\\hline
\end{array}$ 
A)  $$\begin{array} { | l | l | } 
\hline \text { Arnold } & \text { Acorn Corporation } \
\hline \$ 10,000 \text { dividend } & \$ 10,000 \text { dividend } \
\hline
\end{array}$$ 
B)  $\begin{array}{|l|l|}
\hline \text { Arnold } & \text { Acorn Corporation } \
\hline \$ 10,000 \text { dividend } & \$ 8,000 \text { capital gain }\\hline
\end{array}$ 
C) 
$\begin{array}{|l|l|}
\hline \text { Arnold } & \text { Acorn Corporation } \
\hline \$ 8,000 \text { capital gain } & \$ 8,000 \text { capital gain }\\hline
\end{array}$ 
D) 
$\begin{array}{|l|l|}
\hline \text { Arnold } & \text { Acorn Corporation } \
\hline \$ 8,000 \text { capital gain } & \$ 10,000 \text { dividend }\\hline
\end{array}$

Question 13

What must be reported to the IRS by corporations when nondividend distributions are made to its shareholders?

Accepted Answer

The basic purpose of Form 5452, Corporat

Question 14

Which of the following requirements must be met for a redemption to be treated as substantially disproportionate?

Accepted Answer

A)  The shareholder must own less than 50% of the outstanding stock (in terms of voting power) after the redemption. 
B)  After the redemption, the shareholder must own less than 80% of his percentage ownership of common stock (voting and nonvoting) prior to the redemption. 
C)  After the redemption, the shareholder must own less than 80% of his percentage ownership of voting stock prior to the redemption. 
D)  All of the above must be met. 
A)  The shareholder must own less than 50% of the outstanding stock (in terms of voting power) after the redemption. 
B)  After the redemption, the shareholder must own less than 80% of his percentage ownership of common stock (voting and nonvoting) prior to the redemption. 
C)  After the redemption, the shareholder must own less than 80% of his percentage ownership of voting stock prior to the redemption. 
D)  All of the above must be met.

Question 15

Identify which of the following statements is true.

Accepted Answer

A)  The FMV of an obligation is used to determine the E&P reduction when a corporation distributes the obligation to its shareholders. 
B)  When appreciated property is distributed to shareholders, E&P must be increased by any gain (net of taxes) recognized due to the property distribution. 
C)  When appreciated property is distributed in a nonliquidating distribution, the net effect on the distributing corporation's E&P is that it is reduced by the net of the FMV of the property distributed minus the gain (net of federal income taxes) recognized due to the property distribution. 
D)  Only B and C above are true. 
A)  The FMV of an obligation is used to determine the E&P reduction when a corporation distributes the obligation to its shareholders. 
B)  When appreciated property is distributed to shareholders, E&P must be increased by any gain (net of taxes) recognized due to the property distribution. 
C)  When appreciated property is distributed in a nonliquidating distribution, the net effect on the distributing corporation's E&P is that it is reduced by the net of the FMV of the property distributed minus the gain (net of federal income taxes) recognized due to the property distribution. 
D)  Only B and C above are true.

Question 16

Outline the computation of current E&P, including two examples for each adjustment.

Accepted Answer

Taxable income
Plus: income excluded fro

Question 17

River Corporation's taxable income is $25,000, after deducting a $5,000 NOL carryover from last year and after claiming a $10,000 dividends- received deduction. What is the current E&P?

Accepted Answer

River must add back the $10,00

Question 18

What are the consequences of a stock redemption to the distributing corporation?

Accepted Answer

A)  If the redemption is treated as a dividend, E&P is reduced in the same manner as for a regular dividend. 
B)  If the redemption is treated as a sale, only accumulated earnings and profits is reduced. 
C)  The corporation recognizes a gain or loss as if it had sold the distributed property for its FMV immediately before the redemption. 
D)  All of the above are correct. 
A)  If the redemption is treated as a dividend, E&P is reduced in the same manner as for a regular dividend. 
B)  If the redemption is treated as a sale, only accumulated earnings and profits is reduced. 
C)  The corporation recognizes a gain or loss as if it had sold the distributed property for its FMV immediately before the redemption. 
D)  All of the above are correct.

Question 19

Dave, Erica, and Faye are all unrelated. Each has owned 100 shares of News Corporation stock for five years and has a $180,000 basis in those 100 shares. News Corporation's E&P is $720,000. News redeems all 100 of Dave's sh
$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 th 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.

Accepted Answer

a) This is a complete termination of int

Question 20

In a nontaxable distribution of stock rights, when the value of the rights is less than 15% of the value of the stock with respect to which the rights were distributed, the basis of the rights is zero unless the shareholder elects to allocate stock basis to the rights.

Accepted Answer

A) True 
 B)False

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

Joshua owns 100% of Steeler Corporation's stock. Joshua's basis in the stock is $8,000. Steeler Corporation has E&P of $40,000. If Steeler Corporation redeems 60% of Joshua's stock for $50,000, Joshua must report dividend income of

Identify which of the following statements is true.

Identify which of the following statements is true.

The Sec. 318 family attribution rules can be waived for purposes of the Sec. 302(b)(3) complete termination rules even though the redeeming shareholder is a creditor of the corporation.

Identify which of the following statements is true.

What is a constructive dividend? Under what circumstances are constructive dividends most likely to arise?

What must be reported to the IRS by corporations when nondividend distributions are made to its shareholders?

Which of the following requirements must be met for a redemption to be treated as substantially disproportionate?

Identify which of the following statements is true.

Outline the computation of current E&P, including two examples for each adjustment.

River Corporation's taxable income is $25,000, after deducting a $5,000 NOL carryover from last year and after claiming a $10,000 dividends- received deduction. What is the current E&P?

What are the consequences of a stock redemption to the distributing corporation?

In a nontaxable distribution of stock rights, when the value of the rights is less than 15% of the value of the stock with respect to which the rights were distributed, the basis of the rights is zero unless the shareholder elects to allocate stock basis to the rights.

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

U.S. Taxation of Foreign-Related Transactions

Filters

Exam 4: Corporate Nonliquidating Distributions

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

Joshua owns 100% of Steeler Corporation's stock. Joshua's basis in the stock is $8,000. Steeler Corporation has E&P of $40,000. If Steeler Corporation redeems 60% of Joshua's stock for $50,000, Joshua must report dividend income of

Identify which of the following statements is true.

Identify which of the following statements is true.

The Sec. 318 family attribution rules can be waived for purposes of the Sec. 302(b)(3) complete termination rules even though the redeeming shareholder is a creditor of the corporation.

Identify which of the following statements is true.

What is a constructive dividend? Under what circumstances are constructive dividends most likely to arise?

What must be reported to the IRS by corporations when nondividend distributions are made to its shareholders?

Which of the following requirements must be met for a redemption to be treated as substantially disproportionate?

Identify which of the following statements is true.

Outline the computation of current E&P, including two examples for each adjustment.

River Corporation's taxable income is $25,000, after deducting a $5,000 NOL carryover from last year and after claiming a $10,000 dividends- received deduction. What is the current E&P?

What are the consequences of a stock redemption to the distributing corporation?

In a nontaxable distribution of stock rights, when the value of the rights is less than 15% of the value of the stock with respect to which the rights were distributed, the basis of the rights is zero unless the shareholder elects to allocate stock basis to the rights.

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

U.S. Taxation of Foreign-Related Transactions

Filters