Exam 4: Corporate Nonliquidating Distributions

Two corporations are considered to be brother- sister corporations for purposes of the Sec. 304 redemption rules if one shareholder owns more than 50% of each corporation.

Kiara owns 100% of the shares of Lion Corporation. Kiara's basis is $70,000 and the FMV of the shares is $200,000. Kiara is willing to sell all of the stock to Tia, but Tia is unwilling to pay more than $150,000 for the stock because the Corporation has excess cash balances. They have agreed that Kiara can withdraw $50,000 in cash from Lion before the stock sale. What tax issues should be considered with respect to Kiara and Tia's agreement?

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 FMV of the property distributed and increased by the gain (net of federal income taxes) recognized due to the property distribution.

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?

Stone Corporation redeems 1,000 share of its stock from Steve for $100,000. Steve's basis in those shares is $80,000. What tax issues should Steve consider with respect to the transaction?

Identify which of the following statements is false.

Wills Corporation, which has accumulated a current E&P totaling $65,000, distributes land to its sole shareholder, an individual. The land has an FMV of $75,000 and an adjusted basis of $55,000. The shareholder assumes a $15,000 liability associated with the land. The shareholder will recognize

A corporation distributes land and the related liability to Meg, its sole shareholder. The land has an FMV of $60,000 and is subject to a liability of $70,000. The corporation has current and accumulated E&P of $80,000. The corporation's adjusted basis for the property is $70,000. What effect does the transaction have on the corporation?

When computing E&P and taxable income, different depreciation methods are often used. What happens when the taxpayer sells such assets?

Crossroads Corporation distributes $60,000 to its sole shareholder Harley. Crossroads has earnings and profits of $55,000 and Harley's basis in her stock is $20,000. After the distribution, Harley's basis is

Exit Corporation has accumulated E&P of $24,000 at the beginning of the current tax year. Current E&P is $20,000. During the year, the corporation makes the following distributions to its sole shareholder who has a $22,000 basis for her stock. Date Amount Distributed April 1 \ 20,000 June 1 20,000 August 1 15,000 November 1 5,000 The treatment of the $15,000 August 1 distribution would be A) $15,000 is taxable as a dividend; $5,000 from current E&P and the balance from accumulated E&P. B) $4,000 is taxable as a dividend from accumulated E&P, and $11,000 is tax- free as a return of capital. C) $15,000 is taxable as a dividend from accumulated E&P. D) $5,000 is taxable as a dividend from current E&P, and $10,000 is tax- free as a return of capital.

What is a stock redemption? What are some of the reasons for making a stock redemption? Why are some redemptions treated as sales and others as dividends?

Identify which of the following statements is true.

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

Family Corporation, a corporation controlled by Buddy's family, redeems all of Buddy's stock. For the redemption to be treated as a sale, which one of the following conditions must be met?

Maury Corporation has 200 shares of stock outstanding as follows: Name Shares Amy (an individual) 30 APB Partnership (Amy is a 20\% partner) 25 ABC Partnership (Amy is a 70\% partner) 50 Silver Corporation (Amy is a 30\% shareholder) 50 Gold Corporation (Amy is a 60\% shareholder) Total 200 How many shares is Amy deemed to own under the Sec. 318 attribution rules?

Peter owns all 100 shares of Parker Corporation's stock. His basis in the stock is $30,000. Parker Corporation has $300,000 of E&P. Parker Corporation redeems 25 of Peter's shares for $90,000. What are the consequences to Peter and to Parker Corporation?

Current E&P does not include

In the current year, Ho Corporation sells land that has a $6,000 basis and a $10,000 FMV to Henry, an unrelated individual. Henry makes a $2,500 down payment this year and will pay Ho $2,500 per year for the next three years, plus interest on the unpaid balance at a rate acceptable to the IRS. Ho's realized gain is $4,000. Since Ho is not in the business of selling land, it will use the installment method of accounting. How does this transaction affect Ho's E&P in the current year and the three subsequent years?

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