Exam 5: Corporations: Earnings and Profits and Dividend Distributions

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 2019. -Section 179 expense in second year following election.

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.

When computing current E & P, taxable income must be adjusted for the deferred gain in a § 1031 like-kind exchange.

At the beginning of the current year, both Doug and Amelia each own 50% of Amaryllis Corporation a calendar year taxpayer). In July, Doug sold his stock to Kevin for $140,000. At the beginning of the year, Amaryllis Corporation had accumulated E & P of $240,000 and its current E & P is $280,000 prior to any distributions). Amaryllis distributed $300,000 on February 15 $150,000 to Doug and $150,000 to Amelia) and distributed another $300,000 on November 1 $150,000 to Kevin and $150,000 to Amelia). Kevin has dividend income of:

The terms "earnings and profits" and "retained earnings" are identical in meaning.

Which of the following statements is incorrect with respect to determining current E & P?

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 2019. -Dividends received deduction.

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 2019. -Meal expense not deducted in 2019 because of the 50% limitation.

Corporate distributions are presumed to be paid out of E & P and are treated as dividends unless the parties to the transaction can show otherwise.