Exam 5: Corporations: Earnings Profits and Dividend Distributions

Silver Corporation, a calendar year taxpayer, has taxable income of $550,000. Among its transactions for the year are the following: ​ Disregarding any provision for Federal income taxes, Silver Corporation's current E & P is:

If a distribution of stock rights is taxable and their fair market value is less than 15 percent of the value of the old stock, then either a zero basis or a portion of the old stock basis may be assigned to the rights, at the shareholder's option.

Pheasant Corporation, a calendar year taxpayer, has $400,000 of current E & P and a deficit in accumulated E & P of $180,000. If Pheasant pays a $600,000 distribution to its shareholders on July 1, how much dividend income do the shareholders report?

What is a constructive dividend? Provide several examples of the term.

To determine current E & P, taxable income must be increased for any domestic production activities deduction.

During the current year, Hawk Corporation sold equipment for $600,000 (adjusted basis of $360,000). The equipment was purchased a few years ago for $760,000 and $400,000 in MACRS deductions have been claimed. ADS depreciation would have been $300,000. As a result of the sale, the adjustment to taxable income needed to determine current E & P is:

Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2015 -Section 179 expense in second year following election.

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2015.​ -Penalties paid to state government for failure to comply with state law.

Tangelo Corporation has an August 31 year-end. Tangelo had $50,000 in accumulated E & P at the beginning of its 2016 fiscal year (September 1, 2015) and during the year, it incurred a $75,000 operating loss. It also distributed $65,000 to its sole shareholder, Cass, on November 30, 2015. If Cass is a calendar year taxpayer, how should she treat the distribution when she files her 2015 income tax return (assuming the return is filed by April 15, 2016)?

Constructive dividends do not need to satisfy the legal requirements for a dividend as set forth by applicable state law.

When current E & P is positive and accumulated E & P has a deficit balance, the two accounts are netted for dividend determination purposes.

Constructive dividends have no effect on a distributing corporation's E & P.

Purple Corporation makes a property distribution to its sole shareholder, Paul. The property distributed is a house (fair market value of $189,000; basis of $154,000) that is subject to a $245,000 mortgage that Paul assumes. Before considering the consequences of the distribution, Purple's current E & P is $35,000 and its accumulated E & P is $140,000. Purple makes no other distributions during the current year. What is Purple's taxable gain on the distribution of the house?

Federal income tax paid in the current year must be subtracted from taxable income to determine E & P.

In June of the current year, Marigold Corporation declares a $4 dividend out of E & P on each share of common stock to shareholders of record on August 1. Ellen and Tim each purchase 100 shares of Marigold stock on July 1. On July 15, Ellen also purchases a short position in Marigold. Tim sells 50 of his shares on August 10 and continues to hold the remaining 50 shares through the end of the year. Ellen closes her short position in Marigold on October 15. With respect to the dividends, which of the following is correct?

On January 1, Gold Corporation (a calendar year taxpayer) has E & P of $30,000 and generates no additional E & P during the year. On March 31, the corporation distributes $40,000 to its sole shareholder, Wyatt (basis in stock of $8,000). Determine the effect of the distribution on Wyatt's taxable income and stock basis.

Certain dividends from foreign corporations can be qualified dividends for purposes of the preferential rate available to individuals.

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2015.​ -Intangible drilling costs deducted currently.

Cash distributions received from a corporation with a positive balance in accumulated E & P at the beginning of the year will be taxed as dividend income.

An increase in the LIFO recapture amount must be added to taxable income to determine E & P.