Exam 4: Corporate Nonliquidating Distributions

Tia owns 2,000 shares of Bass Corporation common stock with an $80,000 basis. Bass distributes a nontaxable preferred stock dividend. When the preferred stock is distributed, it has an FMV of $60,000 and the FMV of the 2,000 common stock shares is $180,000. The basis of the preferred stock is

Boris owns 60 of the 100 shares outstanding of Bread Corporation stock and 80 of the 100 shares of Butter Corporation stock. His basis in the Bread shares is $10,000 and his basis in his Butter shares is $5,000. Boris sells 30 of his Bread Corporation shares to Butter Corporation for $25,000. Bread Corporation has E&P of $20,000 and Butter Corporation has E&P of $40,000. In applying the substantially disproportionate test to determine if this is a sale or a dividend, Boris is treated as owning how many shares of Bread after the sale?

Good Times Corporation has a $60,000 accumulated E&P balance at the beginning of the year and incurs a $100,000 deficit during the year. Because of its poor operating performance, Good Times pays only three of its usual $10,000 quarterly dividend payments to its sole shareholder: those ordinarily paid March 31, June 30, and September 30. How are the March 31, June 30, and September 30 payments of $10,000 treated?

Jerry purchased land from Winter Harbor Corporation, his 100%- owned corporation, for $275,000. The corporation purchased the land three years ago for $300,000. Similar tracts of land located nearby have sold for $400,000 in recent months. What tax issues should be considered with respect to the corporation's sale of the land?

When computing E&P, Section 179 property must be expensed ratably over a five- year period, starting with the month in which it is expensed for Sec. 179 purposes.

Blast Corporation manufactures purses and make- up kits. The corporation decides to quit manufacturing purses and distributes the assets associated with this division to its shareholders. The distribution of the these assets will be treated as a partial liquidation if

Susan owns 150 of the 200 outstanding shares of Parent Corporation's stock. Parent owns 160 of the 200 outstanding shares of Subsidiary Corporation's stock. Susan sells 50 shares of her Parent stock to Subsidiary for $40,000. Susan's basis in her Parent shares is $15,000 ($100 per share). Subsidiary Corporation and Parent Corporation have E&P of $60,000 and $25,000, respectively, at the end of the year in which the redemption occur a) What is the amount and character of Susan's gain or loss on the sale? b) What is Susan's basis in her remaining shares of Parent stock? c) How does the sale affect the E&P of Parent and Subsidiary Corporations? d) What basis does Subsidiary Corporation take in the Parent shares it purchases? e) How would your answer to Part (a) change if Susan instead sells 100 of her Parent shares to Subsidiary Corporation for $80,000?

For purposes of determining current E&P, which of the following items cannot be deducted in the year incurred?

What are the consequences of a stock redemption to the distributing corporation?

A shareholder's basis in property distributed as a dividend is its fair market value.

A corporation distributes land and the related liability to Meg, its sole shareholder. The land has an FMV of $60,000 and is subject to a liability of $70,000. The corporation has current and accumulated E&P of $80,000. The corporation's adjusted basis for the property is $70,000. What effect does the transaction have on the corporation?

John, the sole shareholder of Photo Specialty Corporation has had an exceptional year. He is considering issuing himself a large bonus in lieu of a dividend. You are concerned about unreasonable compensation. What issues must be considered?

Dave, Erica, and Faye are all unrelated. Each has owned 100 shares of News Corporation stock for five years and has a $180,000 basis in those 100 shares. News Corporation's E&P is $720,000. News redeems all 100 of Dave's sh $300,000, their FMV. a) What is the amount and character of Dave's recognized gain or loss? What basis do Erica and Faye have in th remaining shares? What effect does the redemption have on News's E&P? b) Assuming instead that Dave is Erica's son, answer the questions in part (a) again.

Jack Corporation redeems 200 shares of its stock for $100,000 from Junior, who inherited the stock from his father, Ken. The stock's FMV on Ken's date of death was $90,000. Ken's basis in the stock was $40,000. Jack Corporation had an E&P balance of $300,000. If the redemption qualifies under Sec. 303, Junior will

Identify which of the following statements is true.

Identify which of the following statements is true.

Which of the following is not a condition that permits a stock redemption to be treated as a sale?

Rich owns 60 of the 100 outstanding shares of Rainbow Corporation's stock and 80 of the 100 outstanding shares of Oz Corporation's stock. Rich's basis in his Rainbow shares is $12,000, and his basis in his Oz shares is $8,000. Rich sells 30 of his Rainbow shares to Oz Corporation for $50,000. At the end of the year of the sale, Rainbow and Oz Corporations have E&Ps of $25,000 and $40,000, respectively. a) What is the amount and character of Rich's gain or loss? b) What is Rich's basis in his remaining shares of the Rainbow and Oz stock? c) How does the sale affect the E&Ps of Rainbow and Oz Corporations? d) What basis does Oz Corporation take in the Rainbow shares it purchases? e) How would your answer to part (a) change if Rich owns only 50 shares of the 100 outstanding shares of Oz S

Wills Corporation, which has accumulated a current E&P totaling $70,000, distributes land to its sole shareholder, an individual. The land has an FMV of $75,000 and an adjusted basis of $60,000. The shareholder assumes a $15,000 liability associated with the land. The transaction will have the following tax consequences.

Identify which of the following statements is true.