Exam 4: Corporate Nonliquidating Distributions

Rich owns 60 of the 100 outstanding shares of Rainbow Corporation's stock and 80 of the 100 outstanding shares of Oz Corporation's stock. Rich's basis in his Rainbow shares is $12,000, and his basis in his Oz shares is $8,000. Rich sells 30 of his Rainbow shares to Oz Corporation for $50,000. At the end of the year of the sale, Rainbow and Oz Corporations have E&Ps of $25,000 and $40,000, respectively. a) What is the amount and character of Rich's gain or loss? b) What is Rich's basis in his remaining shares of the Rainbow and Oz stock? c) How does the sale affect the E&Ps of Rainbow and Oz Corporations? d) What basis does Oz Corporation take in the Rainbow shares it purchases? e) How would your answer to part (a) change if Rich owns only 50 shares of the 100 outstanding shares of Oz S

Which of the following is not a reason for a stock redemption?

Define Sec. 306 stock.

In the current year, Pearl Corporation has $300,000 of current and accumulated E&P. On June 3, Pearl Corporatio distributes a parcel of land (a capital asset) worth $120,000 to Betty, a shareholder. The land has a $60,000 adjuste to Pearl Corporation and is subject to a $16,000 mortgage, which Betty assumes. Assume a 34% marginal corpora rate. a) What is the amount and character of the income recognized by Betty as a result of the distribution? b) What is Betty's basis for the land? c) What is the amount and character of Pearl's gain or loss as a result of the distribution? d) What effect does the distribution have on Pearl's E&P?

Bruce receives 20 stock rights in a nontaxable distribution. The stock rights have an FMV of $5,000. The common stock with respect to which the rights are issued has a basis of $4,000 and an FMV of $120,000. Bruce allows the stock rights to lapse. He can deduct a loss of

Identify which of the following statements is true.

Identify which of the following statements is true.

Marie owns one- half of the stock of Starke Corporation and serves as its President. The remaining stock is owned by 10 investors, none of whom owns more than 10% of the outstanding shares. Marie entered a hedge agreement with the corporation three years ago about salary payments that are declared unreasonable compensation by the IRS. Two years ago, the Corporation paid Marie a salary and bonus of $500,000. The IRS subsequently held that $200,000 of the salary is unreasonable compensation. Last year, Starke Corporation and the IRS agreed that $150,000 of the compensation is, in fact, unreasonable. This year, the $150,000 is repaid by Marie to the corporation. How much of the $500,000 compensation was taxable to Marie when originally paid and how much is taxable in the current year?

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

Which of the following statements is not true about redemptions?

In 2010, Tru Corporation deducted $5,000 of bad debts. It received no tax benefit from the deduction because it h NOL in 2010 that it was unable to carry back or forward. In 2011, Tru recovered $4,000 of the amount due. a) What amount must Tru include in income in 2011? b) What effect does the $4,000 have on E&P in 2011, if any?

Poppy Corporation was formed three years ago. Poppy's E&P history is as follows: Year Current E\&P Distributions 2005 \ 6,000 \ 4,000 2006 5,000 1,000 2007 1,000 0 Poppy Corporation's accumulated E&P on January 1 will be

Digger Corporation has $50,000 of current and accumulated E&P. On March 1, Digger distributes land with a $3 FMV and a $17,500 adjusted basis to Dave, its sole shareholder. The land is subject to a $5,000 liability which Dav assumes. a) What are the amount and character of the distribution? b) What is Dave's basis in the property? c) When does his holding period for the property begin?

Which of the following is not a condition that permits a stock redemption to be treated as a sale?

Hogg Corporation distributes $30,000 to its sole shareholder, Ima. At the time of the distribution, Hogg's E&P is $14,000 and Ima's basis in her stock is $10,000. Ima's gain from this transaction is a

Jerry purchased land from Winter Harbor Corporation, his 100%- owned corporation, for $275,000. The corporation purchased the land three years ago for $300,000. Similar tracts of land located nearby have sold for $400,000 in recent months. What tax issues should be considered with respect to the corporation's sale of the land?

Payment Corporation has accumulated E&P of $19,000 and current E&P of $28,000. During the year, the corporation makes the following distributions to its sole shareholder: Date Amount Distributed April 1 \ 20,000 June 1 20,000 August 1 15,000 November 1 5,000 The sole shareholder's basis in her stock is $45,000. What are the tax consequences of the June 1 distribution?

Grant Corporation sells land (a noninventory item) with a basis of $57,000 for $100,000. Nichole will be paid on an installment basis in five equal annual payments, starting in the current year. The E&P for the year of sale will be increased as a result of the sale (excluding federal income taxes) by

Corporations may always use retained earnings as a substitute for earnings and profits.

Maple Corporation distributes land to a noncorporate shareholder. Explain how the following items are comput 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?