Question 1

Which of the following stock distributions would be tax-free to the shareholder?

Accepted Answer

A)  A 2-for-1 stock split to all holders of common stock. 
B)  A stock distribution where the shareholder could choose between cash and stock. 
C)  A stock distribution to all holders of preferred stock. 
D)  A 2-for-1 stock split to all holders of common stock and a stock distribution to all holders of preferred stock are tax-free to the shareholder. 
A)  A 2-for-1 stock split to all holders of common stock. 
B)  A stock distribution where the shareholder could choose between cash and stock. 
C)  A stock distribution to all holders of preferred stock. 
D)  A 2-for-1 stock split to all holders of common stock and a stock distribution to all holders of preferred stock are tax-free to the shareholder.

Question 2

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 in 20X3 would be:

Accepted Answer

A)  No loss recognized and a reduction in E&P of $250,000. 
B)  $50,000 loss recognized and a reduction in E&P of $250,000. 
C)  $50,000 loss recognized and a reduction in E&P of $150,000. 
D)  No loss recognized and a reduction in E&P of $200,000. 
A)  No loss recognized and a reduction in E&P of $250,000. 
B)  $50,000 loss recognized and a reduction in E&P of $250,000. 
C)  $50,000 loss recognized and a reduction in E&P of $150,000. 
D)  No loss recognized and a reduction in E&P of $200,000.

Question 3

Battle Corporation redeems 20 percent of its stock for $100,000 in a stock redemption that is treated as an exchange by the shareholders. Battle's E&P at the date of the redemption is $200,000. Battle must reduce its E&P by $100,000 because of the redemption.

Accepted Answer

A) True 
 B)False

Question 4

Tappan declared a 100 percent stock distribution to all shareholders of record on May 2 of this year. Prior to the distribution, Tappan reported current E&P of $60,000 and accumulated E&P of $30,000. Prior to the split, Barb owned 100 shares of Tappan stock, with a market value of $150 per share and a tax basis of $100 per share. After the distribution, Barb owned 200 shares of Tappan, with a market value of $80 per share. What is the per-share tax basis of Barb's additional 100 shares?

Accepted Answer

to the new stock, ma

Question 5

The term "E&P" iswell defined in the Internal Revenue Code.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements best describes the role of current and accumulated E&P in determining if a distribution is a dividend?

Accepted Answer

A)  A distribution will only be a dividend if net E&P (current plus accumulated) is positive at the time of the distribution. 
B)  A distribution can never be a dividend if current E&P is negative. 
C)  At a minimum, some portion of the distribution will be a dividend if current E&P for the year is positive, even if accumulated E&P is negative. 
D)  A distribution will never be a dividend if current E&P for the year is negative, even if accumulated E&P is positive. 
A)  A distribution will only be a dividend if net E&P (current plus accumulated) is positive at the time of the distribution. 
B)  A distribution can never be a dividend if current E&P is negative. 
C)  At a minimum, some portion of the distribution will be a dividend if current E&P for the year is positive, even if accumulated E&P is negative. 
D)  A distribution will never be a dividend if current E&P for the year is negative, even if accumulated E&P is positive.

Question 7

Which of the following statements best describes current E&P?

Accepted Answer

A)  Current E&P is another name for a corporation's retained earnings on its balance sheet. 
B)  Current E&P is a precisely defined tax term in the Internal Revenue Code and represents a corporation's economic income. 
C)  Current E&P is an ill-defined tax concept in the Internal Revenue Code and represents a corporation's current-year economic income. 
D)  Current E&P is an ill-defined tax concept. 
A)  Current E&P is another name for a corporation's retained earnings on its balance sheet. 
B)  Current E&P is a precisely defined tax term in the Internal Revenue Code and represents a corporation's economic income. 
C)  Current E&P is an ill-defined tax concept in the Internal Revenue Code and represents a corporation's current-year economic income. 
D)  Current E&P is an ill-defined tax concept.

Question 8

Montclair Corporation 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, Molly Pitcher. The land's fair market value was $200,000 and its tax and E&P basis to Montclair was $50,000. Molly assumed a liability of $25,000 attached to the land. The tax consequences of the distribution to Montclair in 20X3 would be:

Accepted Answer

A)  No gain recognized and a reduction in E&P of $200,000. 
B)  $150,000 gain recognized and a reduction in E&P of $200,000. 
C)  $150,000 gain recognized and a reduction in E&P of $175,000. 
D)  No gain recognized and a reduction in E&P of $175,000. 
A)  No gain recognized and a reduction in E&P of $200,000. 
B)  $150,000 gain recognized and a reduction in E&P of $200,000. 
C)  $150,000 gain recognized and a reduction in E&P of $175,000. 
D)  No gain recognized and a reduction in E&P of $175,000.

Question 9

Husker Corporation reportsa deficit in current E&P of ($200,000) in 20X3 and accumulated E&P at the beginning of the year of $300,000. Husker distributed $200,000 to its sole shareholder on December 31, 20X3. The shareholder's tax basis in her stock in Husker is $50,000. How is the distribution treated by the shareholder in 20X3?

Accepted Answer

A)  $200,000 dividend 
B)  $100,000 dividend, $50,000 tax-free return of basis, and $50,000 capital gain 
C)  $100,000 dividend and $100,000 tax-free return of basis 
D)  $0 dividend, $50,000 tax-free return of basis, and $150,000 capital gain 
A)  $200,000 dividend 
B)  $100,000 dividend, $50,000 tax-free return of basis, and $50,000 capital gain 
C)  $100,000 dividend and $100,000 tax-free return of basis 
D)  $0 dividend, $50,000 tax-free return of basis, and $150,000 capital gain

Question 10

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

Accepted Answer

A)  The distribution will not be a dividend because total E&P is a deficit. 
B)  The distribution may be a dividend, depending on whethernet E&P (current plus accumulated E&P) at the date of the distribution is positive. 
C)  The distribution will be a dividend because current E&P is positive and exceeds the distribution. 
D)  A distribution from a corporation to a shareholder is always a dividend, regardless of the balance in E&P. 
A)  The distribution will not be a dividend because total E&P is a deficit. 
B)  The distribution may be a dividend, depending on whethernet E&P (current plus accumulated E&P) at the date of the distribution is positive. 
C)  The distribution will be a dividend because current E&P is positive and exceeds the distribution. 
D)  A distribution from a corporation to a shareholder is always a dividend, regardless of the balance in E&P.

Question 11

Greenwich Corporation reported a net operating loss of $800,000 in 20X3, which the corporation elected to carry forward 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-year charitable contribution of $10,000 that will be carried forward to 20X4. The corporation's current E&P for 20X3 would be:

Accepted Answer

A)  ($250,000). 
B)  ($260,000). 
C)  ($300,000). 
D)  ($360,000). 
A)  ($250,000). 
B)  ($260,000). 
C)  ($300,000). 
D)  ($360,000).

Question 12

Which of the following forms of earnings distributions would not be subject to double taxation at the corporate and shareholder level?

Accepted Answer

A)  Dividend 
B)  Stock redemption 
C)  Partial liquidation 
D)  Compensation paid to a shareholder/employee of the corporation. 
A)  Dividend 
B)  Stock redemption 
C)  Partial liquidation 
D)  Compensation paid to a shareholder/employee of the corporation.

Question 13

Big-gain Corporation distributes land with a fair market value of $220,000 to its sole shareholder. Big-gain's tax basis in the land is $115,000. Big-gain will not be taxed on a gain on the distribution if it has a deficit of ($250,000) in E&P.

Accepted Answer

A) True 
 B)False

Question 14

Orchard, Incorporated reported taxable income of $800,000 in 20X3 and paid federal income taxes of $272,000. Included in the company's computation of taxable income is gain from sale of a depreciable asset of $200,000. The income tax basis of the asset was $50,000. The E&P basis of the asset using the alternative depreciation system was $75,000. Compute the company's current E&P for 20X3.

Accepted Answer

The answer of Orchard, Incorporated reported taxable income of $800,000...

Question 15

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

Accepted Answer

A)  Parents 
B)  Grandchildren 
C)  Grandparents 
D)  Spouse 
A)  Parents 
B)  Grandchildren 
C)  Grandparents 
D)  Spouse

Question 16

El Toro Corporation declared a common stock distribution to all shareholders of record on June 30, 20X3. Shareholders will receive one share of El Toro stock for each two shares of stock they already own. Raoul owns 350 shares of El Toro stock, with a tax basis of $81 per share. The fair market value of the El Toro stock was $121 per share on June 30, 20X3. What are the tax consequences of the stock distribution to Raoul?

Accepted Answer

A)  $0 dividend income and a tax basis in the new stock of $121 per share. 
B)  $0 dividend income and a tax basis in the new stock of $81 per share. 
C)  $0 dividend income and a tax basis in the new stock of $54 per share. 
D)  $21,175 dividend and a tax basis in the new stock of $121 per share. 
A)  $0 dividend income and a tax basis in the new stock of $121 per share. 
B)  $0 dividend income and a tax basis in the new stock of $81 per share. 
C)  $0 dividend income and a tax basis in the new stock of $54 per share. 
D)  $21,175 dividend and a tax basis in the new stock of $121 per share.

Question 17

Cedar Corporation incurs a net capital loss of $20,000 in 20X3 that is carried forward to 20X4. However, Cedar will deduct the net capital loss in the computation of current E&P for 20X3.

Accepted Answer

A) True 
 B)False

Question 18

Beltway Company is owned equally by George, his brother Thomas, and a partnership owned 50 percent by George and his father, Abe. Each of the three shareholders holds 100 shares in the company. Under the §318 stock attribution rules, how many shares of Beltway stock is George deemed to own?

Accepted Answer

A)  100 
B)  150 
C)  200 
D)  300 
A)  100 
B)  150 
C)  200 
D)  300

Question 19

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 230 shares in the company. Under the §318 stock attribution rules, how many shares of Lansing stock is DeWitt Corporation deemed to own?

Accepted Answer

A)  230. 
B)  460. 
C)  575. 
D)  690. 
A)  230. 
B)  460. 
C)  575. 
D)  690.

Question 20

The "family attribution" rules are automatically waived in a complete redemption of a shareholder's stock.

Accepted Answer

A) True 
 B)False

Which of the following stock distributions would be tax-free to the shareholder?

Battle Corporation redeems 20 percent of its stock for $100,000 in a stock redemption that is treated as an exchange by the shareholders. Battle's E&P at the date of the redemption is $200,000. Battle must reduce its E&P by $100,000 because of the redemption.

The term "E&P" iswell defined in the Internal Revenue Code.

Which of the following statements best describes the role of current and accumulated E&P in determining if a distribution is a dividend?

Which of the following statements best describes current E&P?

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

Which of the following forms of earnings distributions would not be subject to double taxation at the corporate and shareholder level?

Big-gain Corporation distributes land with a fair market value of $220,000 to its sole shareholder. Big-gain's tax basis in the land is $115,000. Big-gain will not be taxed on a gain on the distribution if it has a deficit of ($250,000) in E&P.

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

Cedar Corporation incurs a net capital loss of $20,000 in 20X3 that is carried forward to 20X4. However, Cedar will deduct the net capital loss in the computation of current E&P for 20X3.

Beltway Company is owned equally by George, his brother Thomas, and a partnership owned 50 percent by George and his father, Abe. Each of the three shareholders holds 100 shares in the company. Under the §318 stock attribution rules, how many shares of Beltway stock is George deemed to own?

The "family attribution" rules are automatically waived in a complete redemption of a shareholder's stock.

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Business Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

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Exam 7: Corporate Taxation: Non-Liquidating Distributions

Which of the following stock distributions would be tax-free to the shareholder?

Battle Corporation redeems 20 percent of its stock for $100,000 in a stock redemption that is treated as an exchange by the shareholders. Battle's E&P at the date of the redemption is $200,000. Battle must reduce its E&P by $100,000 because of the redemption.

The term "E&P" iswell defined in the Internal Revenue Code.

Which of the following statements best describes the role of current and accumulated E&P in determining if a distribution is a dividend?

Which of the following statements best describes current E&P?

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

Which of the following forms of earnings distributions would not be subject to double taxation at the corporate and shareholder level?

Big-gain Corporation distributes land with a fair market value of $220,000 to its sole shareholder. Big-gain's tax basis in the land is $115,000. Big-gain will not be taxed on a gain on the distribution if it has a deficit of ($250,000) in E&P.

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

Cedar Corporation incurs a net capital loss of $20,000 in 20X3 that is carried forward to 20X4. However, Cedar will deduct the net capital loss in the computation of current E&P for 20X3.

Beltway Company is owned equally by George, his brother Thomas, and a partnership owned 50 percent by George and his father, Abe. Each of the three shareholders holds 100 shares in the company. Under the §318 stock attribution rules, how many shares of Beltway stock is George deemed to own?

The "family attribution" rules are automatically waived in a complete redemption of a shareholder's stock.

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Business Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters