Exam 18: Corporate Taxation: Nonliquidating Distributions

Greenwich Corporation reported a net operating loss of $800,000 in 20X3, which the corporation elected to carryforward to 20X4. The computation of the loss did not include a disallowed fine of $50,000, life insurance proceeds of $500,000, and a current yearcharitable contribution of $10,000 that will be carried forward to 20X4. The corporation's current earnings and profits for 20X3 would be:

Evergreen Corporation distributes land with a fair market value of $50,000 to its sole shareholder. Evergreen's tax basis in the land is $200,000. Evergreen will report a tax loss of $150,000 on the distribution regardless of whether its earnings and profits are positive or negative.

Catamount Company had current and accumulated E&P of $500,000 at December 31,20X3. On December 31, the company made a distribution of land to its sole shareholder, Caroline West. The land's fair market value was $200,000 and its tax and E&P basis to Catamount was $250,000. The tax consequences of the distribution to Catamount in20X3 would be:

Crescent Corporation is owned equally by George and his daughter Olympia, each of whom own100 shares in the company. George wants to retire from the company, and it was decided that the company will redeem all 100 of his shares for $10,000 per share on December 31, 20X3. George's income tax basis in each share is $2,000. Crescent has current E&P of $1,000,000 and accumulated E&P of $5,000,000. What must George do to ensure that the redemption will be treated as anexchange?

Comet Company is owned equally by Pat and his sister Pam, each of whom hold 100 shares in the company. Pam wants to reduce her ownership in the company, and it was decided that the company will redeem 50 of her shares for $1,000 per share on December31, 20X3. Pam's income tax basis in each share is $500. Comet has total E&P of$250,000. What are the tax consequences to Pam because of the stock redemption?

Geneva Corporation, a privately-held company, has one class of voting common stock, of which 1,000 shares are issued and outstanding. The shares are owned as follows: Madison has a 20 percent interest in the partnership. The remaining 80 percent is owned by unrelated individuals. Madison owns 40% of Packer Corporation. The other 60 percent is owned by her father.How many shares of stock is Madison deemed to own under the family attribution rules in a stock redemption?

Lansing Company is owned equally by Jennifer, her husband Dan, and DeWitt Corporation, which is owned 50 percent by Jennifer and her sister Jane. Each of the three shareholders holds 100 shares in the company. Under the §318 stock attribution rules, how many shares of Lansing stock is Jennifer deemed to own?

Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder. Evergreen's tax basis in the land is $50,000. Assuming sufficient earnings and profits, the amount of dividend reported by the shareholder is $200,000.

The recipient of a tax-free stock dividend will have a zero tax basis in the stock.

Grand River Corporation reported taxable income of $500,000 in 20X3 and paid federal income taxes of $170,000. Not included in the computation was a disallowed meals and entertainment expense of $2,000, tax-exempt income of $1,000, and deferred gain on a current year transaction treated as an installment sale of $25,000. The corporation'scurrent earnings and profits for 20X3 would be:

Houghton Company reports negative current E&P of ($500,000) and negative accumulated E&P of($800,000). Houghton distributed $100,000 to its sole shareholder, Blossom Applegate, on December 31, 20X3. Blossom's tax basis in her Houghton stock is $50,000. What is the tax treatment of the distribution to Blossom and what is her tax basis in Houghton stock after the distribution?

A calendar-year corporation has positive current E&P of $500 and accumulated negative E&P of $1,200. The corporation makes a $400 distribution to its sole shareholder. Which of the following statements is true?

Tammy owns 100 shares in Star Struck Corporation. The other 100 shares are owned by her husband Tommy. Which of the following statements is true?

Loon, Inc. reported taxable income of $600,000 in 20X3 and paid federal income taxes of $202,000.Not included in the company's computation of taxable income is tax-exempt interest of $30,000, disallowed meals and entertainment expenses of $15,000, and disallowed expenses related to the tax-exempt income of $4,000. Loon deducted depreciation of $200,000 on its tax return. Under the alternative (E&P) depreciation method, the deduction would have been $80,000. Compute the company's current E&P for 20X3.

Sunapee Corporation reported taxable income of $700,000 from operations for 20X3. During the year, the company made a distribution of land to its sole shareholder, Jean McCarthy. The land's fair market value was $125,000 and its tax and E&P basis to Sunapee was $75,000. Jean assumed a mortgage attached to the land of $25,000. Sunapee's tax rate is 34%. Compute Sunapee's totaltaxable income and federal income tax paid because of the distribution. Using your solution, compute Sunapee's current E&P for 20X3.

Corona Company is owned equally by Maria, her sister Carlita, her mother Gabriella, and her grandmother Olivia, each of whom hold 100 shares in the company. Under the family attribution rules, how many shares of Corona stock is Maria deemed to own?

Which of the following individuals is not considered "family" for purposes of applying the stock attribution rules to a stock redemption?

Evergreen Corporation distributes land with a fair market value of $200,000 to its sole shareholder. Evergreen's tax basis in the land is $50,000. Evergreen will report a gain of$150,000 on the distribution regardless of whether its earnings and profits are positive or negative.