Exam 4: Corporate Nonliquidating Distributions

Wills Corporation, which has accumulated a current E&P totaling $65,000, distributes land to its sole shareholder, an individual. The land has an FMV of $75,000 and an adjusted basis of $55,000. The shareholder assumes a $15,000 liability associated with the land. The shareholder will recognize

Rose has a $20,000 basis in the 60% of the Parent Corporation stock that she owns. Parent Corporation owns a 70% interest in Child Corporation. Parent and Child have current and accumulated E&P balances of $25,000 and $40,000, respectively. In return for $15,000, Rose sells 10% of the Parent Corporation stock to Child Corporation. What is the impact of the transaction on Rose?

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

Family Corporation, a corporation controlled by Buddy's family, redeems all of Buddy's stock. For the redemption to be treated as a sale, which one of the following conditions must be met?

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?

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

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?

Two corporations are considered to be brother- sister corporations for purposes of the Sec. 304 redemption rules if one shareholder owns more than 50% of each corporation.

Bart, a 50% owner of Atlas Corporation's common stock, receives a distribution of a new class of Atlas preferred stock having a $40,000 FMV. Bart's basis in the Atlas common stock is $30,000. Its FMV is $80,000 on the distribution date. One year later, the corporation redeems the preferred stock for $75,000. At the time the stock was issued, the corporation's current and accumulated E&P was $80,000. At the end of the year of redemption, the current and accumulated E&P is $25,000. No other distributions out of E&P were made in the year of redemption. What are the tax consequences of the transaction?

Kiara owns 100% of the shares of Lion Corporation. Kiara's basis is $70,000 and the FMV of the shares is $200,000. Kiara is willing to sell all of the stock to Tia, but Tia is unwilling to pay more than $150,000 for the stock because the Corporation has excess cash balances. They have agreed that Kiara can withdraw $50,000 in cash from Lion before the stock sale. What tax issues should be considered with respect to Kiara and Tia's agreement?

Which of the following statements best describes a bootstrap acquisition?

What is a stock redemption? What are some of the reasons for making a stock redemption? Why are some redemptions treated as sales and others as dividends?

Current E&P does not include

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

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

When computing E&P and taxable income, different depreciation methods are often used. What happens when the taxpayer sells such assets?

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: The sole shareholder's basis in her stock is $45,000. What are the tax consequences of the June 1 distribution?

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

Peter owns all 100 shares of Parker Corporation's stock. His basis in the stock is $30,000. Parker Corporation has $300,000 of E&P. Parker Corporation redeems 25 of Peter's shares for $90,000. What are the consequences to Peter and to Parker Corporation?

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