Question 1

Which of the following statements best describes current E&P?

Accepted Answer

A)  Current E&P is another name for a corporation's retained earnings on its balance sheet. 
B)  Current E&P is a precisely defined tax term in the Internal Revenue Code and represents a corporation's economic income. 
C)  Current E&P is an ill-defined tax concept in the Internal Revenue Code and represents a corporation's current-year economic income. 
D)  Current E&P is an ill-defined tax concept. 
A)  Current E&P is another name for a corporation's retained earnings on its balance sheet. 
B)  Current E&P is a precisely defined tax term in the Internal Revenue Code and represents a corporation's economic income. 
C)  Current E&P is an ill-defined tax concept in the Internal Revenue Code and represents a corporation's current-year economic income. 
D)  Current E&P is an ill-defined tax concept. C

Question 2

Tammy owns 100 shares in Star Struck Corporation. The other 100 shares are owned by her husband, Tommy. Which of the following statements is true?

Accepted Answer

A)  A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as an exchange for tax purposes. 
B)  A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as a dividend for tax purposes. 
C)  A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as an exchange if Tammy waives the family attribution rules and files a "triple i" agreement with the IRS. 
D)  A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as a dividend to the extent that the redemption exceeds Tammy's tax basis in the redeemed shares. 
A)  A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as an exchange for tax purposes. 
B)  A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as a dividend for tax purposes. 
C)  A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as an exchange if Tammy waives the family attribution rules and files a "triple i" agreement with the IRS. 
D)  A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as a dividend to the extent that the redemption exceeds Tammy's tax basis in the redeemed shares. C

Question 3

Which of the following stock distributions would be tax-free to the shareholder?

Accepted Answer

A)  A 2-for-1 stock split to all holders of common stock. 
B)  A stock distribution where the shareholder could choose between cash and stock. 
C)  A stock distribution to all holders of preferred stock. 
D)  A 2-for-1 stock split to all holders of common stock and a stock distribution to all holders of preferred stock are tax-free to the shareholder. 
A)  A 2-for-1 stock split to all holders of common stock. 
B)  A stock distribution where the shareholder could choose between cash and stock. 
C)  A stock distribution to all holders of preferred stock. 
D)  A 2-for-1 stock split to all holders of common stock and a stock distribution to all holders of preferred stock are tax-free to the shareholder. A

Question 4

Yellowstone Corporation made a distribution of $300,000 to Cheney, Inc. in partial liquidation of the company on December 31, 20X3. Cheney, Inc. owns 50 percent of Yellowstone Corporation (1,000 shares). The other 50 percent is owned by an unrelated corporation. The distribution was in exchange for 50 percent of Cheney's stock in the company (500 shares). At the time of the distribution, the shares had a fair market value of $800 per share. Cheney's income tax basis in the shares was $500 per share. Yellowstone had total E&P of $5,000,000 at the time of the distribution. What is the amount and character (capital gain or dividend) of any income or gain recognized by Cheney as a result of the partial liquidation?

Accepted Answer

$300,000 dividend
A corporation receives

Question 5

Catamount Company had current and accumulated E&P of $500,000 at December 31, 20X3. On December 31, the company made a distribution of land to its sole shareholder, Caroline West. The land's fair market value was $200,000 and its tax and E&P basis to Catamount was $250,000. The tax consequences of the distribution to Catamount in 20X3 would be:

Accepted Answer

A)  No loss recognized and a reduction in E&P of $250,000. 
B)  $50,000 loss recognized and a reduction in E&P of $250,000. 
C)  $50,000 loss recognized and a reduction in E&P of $150,000. 
D)  No loss recognized and a reduction in E&P of $200,000. 
A)  No loss recognized and a reduction in E&P of $250,000. 
B)  $50,000 loss recognized and a reduction in E&P of $250,000. 
C)  $50,000 loss recognized and a reduction in E&P of $150,000. 
D)  No loss recognized and a reduction in E&P of $200,000.

Question 6

Pine Creek Company is owned equally by Bob and his sister Samantha, each of whom own 1,000 shares in the company. On December 31, 20X3, Pine Creek redeemed 200 of Samantha's shares for $5,000,000 in a transaction treated as an exchange by Samantha. Pine Creek has current E&P of $10,000,000 and accumulated E&P of $30,000,000 (computed without regard to the stock redemption). Assuming Pine Creek did not make any dividend distributions during 20X3, by what amount does the company reduce its E&P because of the redemption?

Accepted Answer

$4,000,000
Pine Creek reduces its accumu

Question 7

The "family attribution" rules are automatically waived in a complete redemption of a shareholder's stock.

Accepted Answer

A) True 
 B)False

Question 8

A distribution in partial liquidation of a corporation is always treated as a sale or exchange by an individual shareholder.

Accepted Answer

A) True 
 B)False

Question 9

This year Truckit reported taxable income of $160,000 and received $20,000 of municipal interest. Truckit paid $55,000 in entertainment expenses and $15,000 in fines and penalties. Truckit had $50,000 of accumulated E&P at the beginning of the year. What is Truckit's current E&P?

Accepted Answer

A)  $180,000. 
B)  $142,200. 
C)  $110,000. 
D)  $76,400. 
A)  $180,000. 
B)  $142,200. 
C)  $110,000. 
D)  $76,400.

Question 10

Which of the following statements best describes the role of current and accumulated E&P in determining if a distribution is a dividend?

Accepted Answer

A)  A distribution will only be a dividend if total E&P (current plus accumulated) is positive at the time of the distribution. 
B)  A distribution can never be a dividend if current E&P is negative. 
C)  At a minimum, some portion of the distribution will be a dividend if current E&P for the year is positive, even if accumulated E&P is negative. 
D)  A distribution will never be a dividend if current E&P for the year is negative, even if accumulated E&P is positive. 
A)  A distribution will only be a dividend if total E&P (current plus accumulated) is positive at the time of the distribution. 
B)  A distribution can never be a dividend if current E&P is negative. 
C)  At a minimum, some portion of the distribution will be a dividend if current E&P for the year is positive, even if accumulated E&P is negative. 
D)  A distribution will never be a dividend if current E&P for the year is negative, even if accumulated E&P is positive.

Question 11

Siblings are considered "family" under the stock attribution rules that apply to stock redemptions.

Accepted Answer

A) True 
 B)False

Question 12

Lansing Company is owned equally by Jennifer, her husband, Dan, and DeWitt Corporation, which is owned 50 percent by Jennifer and her sister Jane. Each of the three shareholders holds 100 shares in the company. Under the §318 stock attribution rules, how many shares of Lansing stock is Jennifer deemed to own?

Accepted Answer

A)  100. 
B)  200. 
C)  250. 
D)  300. 
A)  100. 
B)  200. 
C)  250. 
D)  300.

Question 13

Which of the following are subtractions from taxable income in computing current E&P?

Accepted Answer

A)  Federal income taxes paid. 
B)  Current charitable contributions in excess of 10 percent limitation. 
C)  Current-year net capital loss. 
D)  All of the choices are subtractions from taxable income in computing current E&P. 
A)  Federal income taxes paid. 
B)  Current charitable contributions in excess of 10 percent limitation. 
C)  Current-year net capital loss. 
D)  All of the choices are subtractions from taxable income in computing current E&P.

Question 14

Oakland Corporation reported a net operating loss of $500,000 in 20X3 and elected to carry the loss forward to 20X4. Not included in the computation was a disallowed meals and entertainment expense of $20,000, tax-exempt income of $10,000, and deferred gain on a current-year transaction treated as an installment sale of $250,000. The corporation's current E&P for 20X3 would be:

Accepted Answer

A)  ($500,000). 
B)  ($720,000). 
C)  ($510,000). 
D)  ($260,000). 
A)  ($500,000). 
B)  ($720,000). 
C)  ($510,000). 
D)  ($260,000).

Question 15

Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder. Evergreen's tax basis in the land is $50,000. Evergreen will report a gain of $150,000 on the distribution regardless of whether its E&P is positive or negative.

Accepted Answer

A) True 
 B)False

Question 16

Beaver Company reports current E&P of $100,000 in 20X3 and accumulated E&P at the beginning of the year of $200,000. Beaver distributed $400,000 to its sole shareholder on January 1, 20X3. The shareholder's tax basis in her stock in Beaver is $200,000. How is the distribution treated by the shareholder in 20X3?

Accepted Answer

A)  $400,000 dividend. 
B)  $100,000 dividend, $200,000 tax-free return of basis, and $100,000 capital gain. 
C)  $200,000 dividend and $200,000 tax-free return of basis. 
D)  $300,000 dividend and $100,000 tax-free return of basis. 
A)  $400,000 dividend. 
B)  $100,000 dividend, $200,000 tax-free return of basis, and $100,000 capital gain. 
C)  $200,000 dividend and $200,000 tax-free return of basis. 
D)  $300,000 dividend and $100,000 tax-free return of basis.

Question 17

Corona Company is owned equally by Maria, her sister Carlita, her mother, Gabriella, and her grandmother Olivia, each of whom hold 100 shares in the company. Under the family attribution rules, how many shares of Corona stock is Maria deemed to own?

Accepted Answer

A)  100. 
B)  200. 
C)  300. 
D)  400. 
A)  100. 
B)  200. 
C)  300. 
D)  400.

Question 18

Which of the following statements is not considered a timing difference due to separate accounting methods for taxable income and E&P?

Accepted Answer

A)  Dividends received deduction. 
B)  Installment gain recognized in current year related to a sale in a prior year. 
C)  Gain on sale of depreciable assets with higher E&P basis. 
D)  Section 179 expense. 
A)  Dividends received deduction. 
B)  Installment gain recognized in current year related to a sale in a prior year. 
C)  Gain on sale of depreciable assets with higher E&P basis. 
D)  Section 179 expense.

Question 19

A distribution from a corporation to a shareholder will always be treated as a dividend for tax purposes.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements best describes the priority of the tax treatment of a distribution from a corporation to a shareholder?

Accepted Answer

A)  The distribution is a dividend to the extent of the corporation's E&P, then a return of capital, and finally gain from sale of stock. 
B)  The distribution is a return of capital, then a dividend to the extent of the corporation's E&P, and finally gain from sale of stock. 
C)  The distribution is a return of capital, then gain from sale of stock, and finally a dividend to the extent of the corporation's E&P. 
D)  The shareholder can elect to treat the distribution as either a dividend to the extent of the corporation's E&P or a return of capital, followed by gain from sale of stock. 
A)  The distribution is a dividend to the extent of the corporation's E&P, then a return of capital, and finally gain from sale of stock. 
B)  The distribution is a return of capital, then a dividend to the extent of the corporation's E&P, and finally gain from sale of stock. 
C)  The distribution is a return of capital, then gain from sale of stock, and finally a dividend to the extent of the corporation's E&P. 
D)  The shareholder can elect to treat the distribution as either a dividend to the extent of the corporation's E&P or a return of capital, followed by gain from sale of stock.

Which of the following statements best describes current E&P?

Tammy owns 100 shares in Star Struck Corporation. The other 100 shares are owned by her husband, Tommy. Which of the following statements is true?

Which of the following stock distributions would be tax-free to the shareholder?

The "family attribution" rules are automatically waived in a complete redemption of a shareholder's stock.

A distribution in partial liquidation of a corporation is always treated as a sale or exchange by an individual shareholder.

This year Truckit reported taxable income of $160,000 and received $20,000 of municipal interest. Truckit paid $55,000 in entertainment expenses and $15,000 in fines and penalties. Truckit had $50,000 of accumulated E&P at the beginning of the year. What is Truckit's current E&P?

Which of the following statements best describes the role of current and accumulated E&P in determining if a distribution is a dividend?

Siblings are considered "family" under the stock attribution rules that apply to stock redemptions.

Which of the following are subtractions from taxable income in computing current E&P?

Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder. Evergreen's tax basis in the land is $50,000. Evergreen will report a gain of $150,000 on the distribution regardless of whether its E&P is positive or negative.

Corona Company is owned equally by Maria, her sister Carlita, her mother, Gabriella, and her grandmother Olivia, each of whom hold 100 shares in the company. Under the family attribution rules, how many shares of Corona stock is Maria deemed to own?

Which of the following statements is not considered a timing difference due to separate accounting methods for taxable income and E&P?

A distribution from a corporation to a shareholder will always be treated as a dividend for tax purposes.

Which of the following statements best describes the priority of the tax treatment of a distribution from a corporation to a shareholder?

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

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Exam 7: Corporate Taxation: Nonliquidating Distributions

Which of the following statements best describes current E&P?

Tammy owns 100 shares in Star Struck Corporation. The other 100 shares are owned by her husband, Tommy. Which of the following statements is true?

Which of the following stock distributions would be tax-free to the shareholder?

The "family attribution" rules are automatically waived in a complete redemption of a shareholder's stock.

A distribution in partial liquidation of a corporation is always treated as a sale or exchange by an individual shareholder.

This year Truckit reported taxable income of $160,000 and received $20,000 of municipal interest. Truckit paid $55,000 in entertainment expenses and $15,000 in fines and penalties. Truckit had $50,000 of accumulated E&P at the beginning of the year. What is Truckit's current E&P?

Which of the following statements best describes the role of current and accumulated E&P in determining if a distribution is a dividend?

Siblings are considered "family" under the stock attribution rules that apply to stock redemptions.

Which of the following are subtractions from taxable income in computing current E&P?

Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder. Evergreen's tax basis in the land is $50,000. Evergreen will report a gain of $150,000 on the distribution regardless of whether its E&P is positive or negative.

Corona Company is owned equally by Maria, her sister Carlita, her mother, Gabriella, and her grandmother Olivia, each of whom hold 100 shares in the company. Under the family attribution rules, how many shares of Corona stock is Maria deemed to own?

Which of the following statements is not considered a timing difference due to separate accounting methods for taxable income and E&P?

A distribution from a corporation to a shareholder will always be treated as a dividend for tax purposes.

Which of the following statements best describes the priority of the tax treatment of a distribution from a corporation to a shareholder?

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters