Exam 4: Corporate Nonliquidating Distributions

Stone Corporation redeems 1,000 share of its stock from Steve for $100,000. Steve's basis in those shares is $80,000. What tax issues should Steve consider with respect to the transaction?

Gould Corporation distributes land (a capital asset) worth $90,000 to Gerry, a shareholder. The land has a $30,000 basis to Gould. What is the amount and character of the gain or loss recognized by Gould?

Ameriparent Corporation owns a 70% interest in Flag Corporation. The corporations have current and accumulated E&Ps of $25,000 and $40,000, respectively. Taxpayer, who has a $20,000 basis in her 40% ownership interest of Ameriparent Corporation, sells sufficient stock to Flag to reduce her interest in Ameriparent from 40% to 20%. Taxpayer receives $20,000 for the stock she surrenders. What are the tax consequences of the transaction for Taxpayer?

Alice owns 56% of Daisy Corporation's stock and 50% of May Corporation's stock. Alice sells one- half of her interest in May Corporation to Daisy Corporation for $30,000. The E&P balances of Daisy and May are $25,000 and $35,000, respectively. Alice's basis in her Daisy stock is $40,000 and her basis in the May stock is $38,000. What are the tax consequences of the transaction?

Identify which of the following statements is true.

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?

The Sec. 318 family attribution rules can be waived for purposes of the Sec. 302(b)(3) complete termination rules even though the redeeming shareholder is a creditor of the corporation.

Corporations may always use retained earnings as a substitute for earnings and profits.

Dixie Corporation distributes $31,000 to its sole shareholder, Sally. At the time of the distribution, Dixie's E&P is $25,000 and Sally's basis in her Dixie stock is $10,000. Sally's basis in her Dixie stock after the distribution is

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?

Crossroads Corporation distributes $60,000 to its sole shareholder Harley. Crossroads has earnings and profits of $55,000 and Harley's basis in her stock is $20,000. After the distribution, Harley's basis is

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:

Identify which of the following statements is true.

Which of the following requirements must be met for a redemption to be treated as substantially disproportionate?

What must be reported to the IRS by corporations when nondividend distributions are made to its shareholders?

Exit Corporation has accumulated E&P of $24,000 at the beginning of the current tax year. Current E&P is $20,000. During the year, the corporation makes the following distributions to its sole shareholder who has a $22,000 basis for her stock. The treatment of the $15,000 August 1 distribution would be A) $15,000 is taxable as a dividend; $5,000 from current E&P and the balance from accumulated E&P. B) $4,000 is taxable as a dividend from accumulated E&P, and $11,000 is tax- free as a return of capital. C) $15,000 is taxable as a dividend from accumulated E&P. D) $5,000 is taxable as a dividend from current E&P, and $10,000 is tax- free as a return of capital.

Identify which of the following statements is true.

Identify which of the following statements is false.

Identify which of the following statements is false.

John owns 70% of the May Corporation stock and 60% of the June Corporation stock. John sells one- half of his interest in May Corporation to June Corporation for $45,000. The E&P accounts of May and June are $25,000 and $35,000, respectively. The result would be that