Exam 4: Corporate Nonliquidating Distributions

Identify which of the following statements is true.

A corporation distributes land and the related liability in a nonliquidating distribution to a shareholder. The land (a capital asset) has an adjusted basis of $70,000, an FMV of $100,000 and is subject to a mortgage of $120,000. The corporation must recognize

Identify which of the following statements is true.

Elijah owns 20% of Park Corporation's single class of stock. Elijah's basis in the stock is $8,000. Park's E&P is $28,000. If Park redeems all of Elijah's stock for $48,000, Elijah must report dividend income of

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 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?

A partial liquidation of a corporation is treated as a dividend in the case of a corporate shareholder.

Omega Corporation is formed in 2006. Its current E&P and distributions for each year through 2010 are as follows: Year Current E\&P (deficit) Distributions 2007 \ (20,000) 0 2008 30,000 0 2009 36,000 \ 18,000 2010 16,000 0 Is the distribution made from current or accumulated E&P? At the beginning of 2011, what is accumulated E&P?

When is E&P measured for purposes of determining whether a distribution is a dividend?

Identify which of the following statements is true.

Identify which of the following statements is true.

Ameriparent Corporation owns a 70% interest in Flag Corporation. The corporations have current and accumulated E&Ps of $25,000 and $40,000, respectively. Taxpayer, who has a $20,000 basis in her 40% ownership interest of Ameriparent Corporation, sells sufficient stock to Flag to reduce her interest in Ameriparent from 40% to 20%. Taxpayer receives $20,000 for the stock she surrenders. What are the tax consequences of the transaction for Taxpayer?

Tia owns 2,000 shares of Bass Corporation common stock with an $80,000 basis. Bass distributes a nontaxable preferred stock dividend. When the preferred stock is distributed, it has an FMV of $60,000 and the FMV of the 2,000 common stock shares is $180,000. The basis of the preferred stock is

Nichol Corporation has 100 shares of common stock outstanding. Nichol repurchased all of Ned's 30 shares for $35,000 cash during the current year. Ned received the shares as a gift from his mother three years ago. They have a basis to him of $16,000. Nichol Corporation has $100,000 in current and accumulated E&P. Ned's mother owns 40 of the remaining shares; unrelated individuals own the other 30 shares. What tax issues should be considered with respect to the corporation's purchase of Ned's shares?

Identify which of the following statements is false.

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

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

Gould Corporation distributes land (a capital asset) worth $90,000 to Gerry, a shareholder. The land has a $30,000 basis to Gould. What is the amount and character of the gain or loss recognized by Gould?

John, the sole shareholder of Photo Specialty Corporation has had an exceptional year. He is considering issuing himself a large bonus in lieu of a dividend. You are concerned about unreasonable compensation. What issues must be considered?

Identify which of the following statements is false.

For purposes of determining current E&P, which of the following items cannot be deducted in the year incurred?