Exam 7: Corporate Taxation: Nonliquidating Distributions

St. Clair Company reports positive current E&P of $500,000 in 20X3 and positive accumulated E&P at the beginning of the year of $400,000. St. Clair Company distributed $600,000 to its sole shareholder, Danielle Brush, on December 31, 20X3. Danielle's tax basis in her St. Clair stock is $120,000. How much of the $600,000 distribution is treated as a dividend to Danielle, and what is her basis in St. Clair stock after the distribution?

Superior Corporation reported taxable income of $1,000,000 in 20X3. Superior paid a dividend of $100,000 to its sole shareholder, Mary Yooper. Superior Corporation is subject to a flat-rate tax of 21 percent. The dividend meets the requirements to be a "qualified dividend," and Mary is subject to a tax rate of 15 percent on the dividend. What is the total federal income tax imposed on the corporate income earned by Superior, including taxes on the amount distributed to Mary as a dividend?

Houghton Company reports a deficit in current E&P of ($500,000) and a deficit in accumulated E&P of ($800,000). Houghton distributed $100,000 to its sole shareholder, Blossom Applegate, on December 31, 20X3. Blossom's tax basis in her Houghton stock is $50,000. What is the tax treatment of the distribution to Blossom, and what is her tax basis in Houghton stock after the distribution?

Half Moon Corporation made a distribution of $300,000 to Arnold Swartz in partial liquidation of the company on December 31, 20X3. Arnold owns 100 percent of Half Moon Corporation (1,200 shares). The distribution was in exchange for 50 percent of Arnold's stock in the company (600 shares). At the time of the distribution, the shares had a fair market value of $500 per share. Arnold's income tax basis in the shares was $250 per share. Half Moon had total E&P of $2,000,000 at the time of the distribution. What is the amount and character (capital gain or dividend) of any income or gain recognized by Arnold as a result of the partial liquidation?

Goose Company is owned equally by Val and her sister Eugenia, each of whom own 500 shares in the company. Val wants to reduce her ownership in the company and have the transaction treated as an exchange for tax purposes. Determine the minimum amount of stock that Goose must redeem from Val for her to treat the redemption as being "substantially disproportionate with respect to the shareholder" and receive exchange treatment.

Which statement best describes the concept of the "double taxation" of corporation income?

Panda Company is owned equally by Min, her husband, Bin, her sister Xiao, and her grandson, Han, each of whom hold 100 shares in the company. Under the family attribution rules, how many shares of Panda stock is Min deemed to own?

Bruin Company reports current E&P of $200,000 in 20X3 and accumulated E&P at the beginning of the year of $100,000. Bruin distributed $400,000 to its sole shareholder on January 1, 20X3. How much of the distribution is treated as a dividend in 20X3?

Buckeye Company is owned equally by James and his brother Terrelle, each of whom own 500 shares in the company. Terrelle wants to reduce his ownership in the company, and it was decided that the company will redeem 200 of his shares for $5,000 per share on December 31, 20X3. Terrelle's income tax basis in each share is $1,000. Buckeye has current E&P of $10,000,000 and accumulated E&P of $20,000,000. What is the amount and character (capital gain or dividend) recognized by Terrelle because of the stock redemption?

Which of these items is not an adjustment to taxable income or net loss to compute current E&P?

Terrapin Corporation incurs federal income taxes of $250,000 in 20X3. Terrapin deducts the federal income taxes in computing its current E&P for 20X3.

Walloon, Inc. reported taxable income of $1,000,000 in 20X3 and paid federal income taxes of $210,000. The company reported a capital gain from sale of investments of $150,000, which was partially offset by a $40,000 net capital loss carryover from 20X2, resulting in a net capital gain of $110,000 included in taxable income. Compute the company's current E&P for 20X3.

Abbot Corporation reported a net operating loss of $400,000 in 20X3, which the corporation elected to carry forward to 20X4. Included in the computation of the taxable loss was regular depreciation of $100,000 (E&P depreciation is $40,000), first-year expensing under §179 of $50,000, and a dividends received deduction of $10,000. The corporation's current E&P for 20X3 would be:

A stock redemption is always treated as a sale or exchange for tax purposes.

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 DeWitt Corporation deemed to own?

Townsend Corporation declared a 1-for-1 stock split to all common stock shareholders of record on December 31, 20X3. Townsend reported current E&P of $400,000 and accumulated E&P of $1,000,000. The total fair market value of the stock distributed was $500,000. Regina Williams owned 1,000 shares of Townsend common stock, with a tax basis of $200 per share ($200,000 total). The fair market value of the common stock was $300 per share on December 31, 20X3. What is Regina's income tax basis per share in the new and existing common stock she owns in Townsend, assuming the distribution is tax-free?

Tappan declared a 100 percent stock distribution to all shareholders of record on May 2 of this year. Prior to the distribution, Tappan reported current E&P of $60,000 and accumulated E&P of $30,000. Prior to the split, Barb owned 100 shares of Tappan stock, with a market value of $150 per share and a tax basis of $100 per share. After the distribution, Barb owned 200 shares of Tappan, with a market value of $80 per share. What is the per-share tax basis of Barb's additional 100 shares?

Sam owns 70 percent of the stock of Club Corporation. Unrelated individuals own the remaining 30 percent. For a stock redemption of Sam's stock to be treated as an exchange under the "substantially disproportionate" test, what percentage of Club stock must Sam own after the redemption?

Crescent Corporation is owned equally by George and his daughter Olympia, each of whom own 100 shares in the company. George wants to retire from the company, and it was decided that the company will redeem all 100 of his shares for $10,000 per share on December 31, 20X3. George's income tax basis in each share is $2,000. Crescent has current E&P of $1,000,000 and accumulated E&P of $5,000,000. What must George do to ensure that the redemption will be treated as an exchange?

Montclair Corporation 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, Molly Pitcher. The land's fair market value was $200,000 and its tax and E&P basis to Montclair was $50,000. Molly assumed a liability of $25,000 attached to the land. The tax consequences of the distribution to Montclair in 20X3 would be: