Exam 4: Corporate Nonliquidating Distributions

A stock redemption is always treated as if the shareholder sold his stock to the corporation.

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.

How does a shareholder classify a distribution for tax purposes?

Jack Corporation redeems 200 shares of its stock for $100,000 from Junior, who inherited the stock from his father, Ken. The stock's FMV on Ken's date of death was $90,000. Ken's basis in the stock was $40,000. Jack Corporation had an E&P balance of $300,000. If the redemption qualifies under Sec. 303, Junior will

In a taxable distribution of stock, the recipient shareholder takes a basis equal to the FMV of the stock received.

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

Strong Corporation is owned by a group of 20 shareholders. During the current year, Strong Corporation pays $ in salary and bonuses to Stedman, its president and controlling shareholder. The IRS audits Strong's tax return a determines that reasonable compensation for Stedman would be $125,000. Strong Corporation agrees to the adju a) What effect does the disallowance of part of the deduction for Stedman's salary and bonuses have on Strong Corporation and Stedman? b) What tax savings could have been obtained by Strong Corporation and Stedman if an agreement had been in that required Stedman to repay Strong Corporation any amounts determined by the IRS to be unreasonable?

Blast Corporation manufactures purses and make- up kits. The corporation decides to quit manufacturing purses and distributes the assets associated with this division to its shareholders. The distribution of the these assets will be treated as a partial liquidation if

An individual shareholder owns 3,000 shares of Baxter Corporation common stock with a basis of $10 per share. She receives a nontaxable 5% stock dividend. The basis per share of the common stock after the stock dividend is

Van owns all 1,000 shares of Valley Metal Corporation stock. The stock has a $100,000 FMV. Karen wants to purchase the stock from Van but has only $70,000. Valley Metal has ample cash, which is not needed for operations. Which of the following best qualifies for bootstrap redemption treatment and no constructive dividends to the purchaser?

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

Green Corporation is a calendar- year taxpayer. All of the stock is owned by Evan. His basis for the stock is $35,000. On March 1 (of a non- leap year), Green Corporation distributes $120,000 to Evan. Determine the tax consequences of the cash distribution to Evan in each of the following independent situations: Current E\&P Accumulated E\&P a) \ 30,000 \ 100,000 b) 50,000 (50,000) c) (73,000) 40,000 d) (20,000) (50,000)

Checkers Corporation has a single class of common stock outstanding. Bert owns 100 shares, which he purchased five years ago for $200,000. In the current year, when the stock is worth $2,500 per share, Checkers Corporation declares a 10% stock dividend payable in common stock. Bert receives ten additional shares on December 10 of the current year. On January 25 of next year he sells all ten shares for $30,000. a) How much income must Bert recognize when he receives the stock dividend? b) How much gain or loss must Bert recognize when he sells the ten shares he received as a stock dividend?