Question 1

What is a constructive dividend? Under what circumstances are constructive dividends most likely to arise?

Accepted Answer

A constructive dividend (or undeclared d

Question 2

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

Accepted Answer

A)  $43,000. 
B)  $100,000. 
C)  $8,600. 
D)  $0. 
A)  $43,000. 
B)  $100,000. 
C)  $8,600. 
D)  $0.

Question 3

In the current year, Red Corporation has $100,000 of current and accumulated E&P. On March 2, Red Corporatio distributes to Randy, a shareholder, a parcel of land (a capital asset) having a $60,000 FMV. The land has a $30,00 adjusted basis (for both tax and E&P purposes) to Red Corporation and is subject to an $8,000 mortgage, which R assumes. Assume a 34% marginal corporate tax rate.
a) What is the amount and character of the income Randy recognizes as a result of the distribution?
b) What is Randy's basis for the land?
c) What is the amount and character of Red Corporation's gain or loss as a result of the distribution?
d) What effect does the distribution have on Red Corporation's E&P?

Accepted Answer

a) Randy receives a taxable dividend of

Question 4

Oreo Corporation has accumulated E&P of $8,000 at the beginning of the current year. During the year (a nonleap year), the corporation incurs a current E&P deficit of $18,250. The corporation distributes $11,000 on March 20th to Morris, its sole shareholder, who has a $9,000 basis for his stock. If the exact loss cannot be determined as of the date of distribution, the treatment of the distribution will be

Accepted Answer

A)  $11,000 return of capital. 
B)  $4,100 dividend and a $6,900 tax free return of capital. 
C)  $8,000 dividend and a $3,000 return of capital. 
D)  $4,100 dividend and a $6,900 capital gain. 
A)  $11,000 return of capital. 
B)  $4,100 dividend and a $6,900 tax free return of capital. 
C)  $8,000 dividend and a $3,000 return of capital. 
D)  $4,100 dividend and a $6,900 capital gain.

Question 5

Why are stock dividends generally nontaxable? Under what circumstances are stock dividends taxable?

Accepted Answer

Stock dividends generally are nontaxable

Question 6

Identify which of the following statements is false.
A) Adjustments to taxable income when computing E&P do not include tax- exempt interest.
B) At formation, a corporation's E&P depends on the amount of capital contributed by the shareholders.
C) For E&P dividend distribution purposes, property as defined in Sec. 317(a) includes money.
D) The function of E&P is to provide a measure of a corporation's economic ability to pay dividends.

Accepted Answer

The answer of Identify which of the following statements is...

Question 7

Which of the following transactions does not have the potential of creating a constructive dividend?

Accepted Answer

A)  shareholder's rental of corporate property 
B)  compensation paid by a corporation to a shareholder- employee 
C)  purchase of corporate property by the shareholder 
D)  All of the above can result in a constructive dividend. 
A)  shareholder's rental of corporate property 
B)  compensation paid by a corporation to a shareholder- employee 
C)  purchase of corporate property by the shareholder 
D)  All of the above can result in a constructive dividend.

Question 8

When appreciated property is distributed in a nonliquidating distribution, the net effect on the distributing corporation's E&P is that it is reduced by the FMV of the property distributed and increased by the gain (net of federal income taxes) recognized due to the property distribution.

Accepted Answer

A) True 
 B)False

Question 9

Omega Corporation is formed in 2006. Its current E&P and distributions for each year through 2010 are as follows:   Is the distribution made from current or accumulated E&P? At the beginning of 2011, what is accumulated E&P?

Accepted Answer

The $18,000 distribution is made from 20

Question 10

Identify which of the following statements is true.

Accepted Answer

A)  Corporations without E&P can distribute preferred stock as a stock dividend that is Sec. 306 stock. 
B)  The distribution of preferred stock as a stock dividend will result in income or a taxable gain being recognized by the shareholder on the date of the distribution if the stock is Sec. 306 stock. 
C)  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. 
D)  All of the above are false. 
A)  Corporations without E&P can distribute preferred stock as a stock dividend that is Sec. 306 stock. 
B)  The distribution of preferred stock as a stock dividend will result in income or a taxable gain being recognized by the shareholder on the date of the distribution if the stock is Sec. 306 stock. 
C)  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. 
D)  All of the above are false.

Question 11

Which of the following statements is not true about redemptions?

Accepted Answer

A)  Redemptions of Sec. 306 stock are generally treated as dividends to the shareholder. 
B)  Redemptions to pay death taxes are treated as dividends to the shareholder. 
C)  A sale of stock from one controlled corporation to another controlled corporation is treated as a redemption. 
D)  A distribution in redemption of stock is generally a dividend. 
A)  Redemptions of Sec. 306 stock are generally treated as dividends to the shareholder. 
B)  Redemptions to pay death taxes are treated as dividends to the shareholder. 
C)  A sale of stock from one controlled corporation to another controlled corporation is treated as a redemption. 
D)  A distribution in redemption of stock is generally a dividend.

Question 12

Outline the computation of current E&P, including two examples for each adjustment.

Accepted Answer

Taxable income
Plus: income excluded fro

Question 13

Identify which of the following statements is true.

Accepted Answer

A)  Generally in a stock redemption, if the shareholder's ownership percentage is substantially reduced, the redemption is treated as a sale. 
B)  A 10% shareholder of a corporation is considered to own 10% of any stock that is owned by the corporation under the Sec. 318 attribution rules. 
C)  The family attribution rules of Sec. 318 are as inclusive as the family attribution rules of Sec. 267. 
D)  All of the above are false. 
A)  Generally in a stock redemption, if the shareholder's ownership percentage is substantially reduced, the redemption is treated as a sale. 
B)  A 10% shareholder of a corporation is considered to own 10% of any stock that is owned by the corporation under the Sec. 318 attribution rules. 
C)  The family attribution rules of Sec. 318 are as inclusive as the family attribution rules of Sec. 267. 
D)  All of the above are false.

Question 14

All of Sphere Corporation's single class of stock is owned by four unrelated individuals in the following manner: Zack 27%, Xu 24.33%, Yvonne 24.33%, and Win 24.33%. Some of Zack's stock holdings are redeemed by Sphere Corporation, resulting in Zack's interest being reduced to 22.27%. Xu, Yvonne, and Win owned equally the remaining 77.73% of the Sphere stock. How should the redemption of Zack's stock be treated by Zack?

Accepted Answer

A)  sale transaction 
B)  return of capital 
C)  dividend income 
D)  some other treatment 
A)  sale transaction 
B)  return of capital 
C)  dividend income 
D)  some other treatment

Question 15

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

Accepted Answer

A)  $20,000 capital gain. 
B)  $14,000 capital gain. 
C)  $6,000 capital gain. 
D)  $30,000 capital gain. 
A)  $20,000 capital gain. 
B)  $14,000 capital gain. 
C)  $6,000 capital gain. 
D)  $30,000 capital gain.

Question 16

Poppy Corporation was formed three years ago. Poppy's E&P history is as follows:   Poppy Corporation's accumulated E&P on January 1 will be

Accepted Answer

A)  $5,000. 
B)  $7,000. 
C)  $12,000. 
D)  $0. 
A)  $5,000. 
B)  $7,000. 
C)  $12,000. 
D)  $0.

Question 17

Perch Corporation has made paint and paint brushes for the past ten years. Perch Corporation is owned equally by Arnold, an individual, and Acorn Corporation. Perch Corporation has $100,000 of accumulated and current E&P. Both Arnold and Acorn Corporation have a basis in their stock of $10,000. Perch Corporation discontinues the paint brush operation and distributes assets worth
$10,000 each to Arnold and Acorn Corporation in redemption of 20% of their stock. Due to the distribution, Arnold and Acorn Corporation must report:

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 18

Nichol Corporation has 100 shares of common stock outstanding. Nichol repurchased all of Ned's 30 shares for
$35,000 cash during the current year. Ned received the shares as a gift from his mother three years ago. They have a basis to him of $16,000. Nichol Corporation has $100,000 in current and accumulated E&P. Ned's mother owns 40 of the remaining shares; unrelated individuals own the other 30 shares. What tax issues should be considered with respect to the corporation's purchase of Ned's shares?

Accepted Answer

• What is Ned's stock ownership before a

Question 19

Identify which of the following statements is true.

Accepted Answer

A)  To qualify as a partial liquidation, a distribution must result in a bona fide contraction of the corporate business at the corporate level. 
B)  A partial liquidation of a corporation must be pro rata. 
C)  To have a bona fide partial liquidation, a firm must continue to conduct a qualified trade or business, which it had conducted for a period of more than three years prior to the redemption. 
D)  All of the above are false. 
A)  To qualify as a partial liquidation, a distribution must result in a bona fide contraction of the corporate business at the corporate level. 
B)  A partial liquidation of a corporation must be pro rata. 
C)  To have a bona fide partial liquidation, a firm must continue to conduct a qualified trade or business, which it had conducted for a period of more than three years prior to the redemption. 
D)  All of the above are false.

Question 20

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

Accepted Answer

A)  $67,500. 
B)  $0. 
C)  $22,500. 
D)  $7,500. 
A)  $67,500. 
B)  $0. 
C)  $22,500. 
D)  $7,500.

What is a constructive dividend? Under what circumstances are constructive dividends most likely to arise?

Why are stock dividends generally nontaxable? Under what circumstances are stock dividends taxable?

Which of the following transactions does not have the potential of creating a constructive dividend?

When appreciated property is distributed in a nonliquidating distribution, the net effect on the distributing corporation's E&P is that it is reduced by the FMV of the property distributed and increased by the gain (net of federal income taxes) recognized due to the property distribution.

Omega Corporation is formed in 2006. Its current E&P and distributions for each year through 2010 are as follows: Is the distribution made from current or accumulated E&P? At the beginning of 2011, what is accumulated E&P?

Identify which of the following statements is true.

Which of the following statements is not true about redemptions?

Outline the computation of current E&P, including two examples for each adjustment.

Identify which of the following statements is true.

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

Poppy Corporation was formed three years ago. Poppy's E&P history is as follows: Poppy Corporation's accumulated E&P on January 1 will be

Identify which of the following statements is true.

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

Tax Deductions and Travel Expenses for Employees and Self-Employed Individuals

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Exam 4: Corporate Nonliquidating Distributions

What is a constructive dividend? Under what circumstances are constructive dividends most likely to arise?

Why are stock dividends generally nontaxable? Under what circumstances are stock dividends taxable?

Which of the following transactions does not have the potential of creating a constructive dividend?

When appreciated property is distributed in a nonliquidating distribution, the net effect on the distributing corporation's E&P is that it is reduced by the FMV of the property distributed and increased by the gain (net of federal income taxes) recognized due to the property distribution.

Omega Corporation is formed in 2006. Its current E&P and distributions for each year through 2010 are as follows: Is the distribution made from current or accumulated E&P? At the beginning of 2011, what is accumulated E&P?

Identify which of the following statements is true.

Which of the following statements is not true about redemptions?

Outline the computation of current E&P, including two examples for each adjustment.

Identify which of the following statements is true.

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

Poppy Corporation was formed three years ago. Poppy's E&P history is as follows: Poppy Corporation's accumulated E&P on January 1 will be

Identify which of the following statements is true.

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

Tax Deductions and Travel Expenses for Employees and Self-Employed Individuals

Filters