Exam 7: Corporate Taxation: Nonliquidating Distributions

Madison Corporation reported taxable income of $400,000 in 20X3 and accrued federal income taxes of $136,000.Included in the computation of taxable income was regular depreciation of $200,000 (E&P depreciation is $60,000)and a net capital loss carryover of $20,000 from 20X2 utilized in 20X3.The corporation's current earnings and profits for 20X3 would be:

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.

Walloon,Inc.reported taxable income of $1,000,000 in 20X3 and paid federal income taxes of $340,000.The company reported a capital gain from sale of investments of $150,000,which was partially offset by a $40,000 net capital loss carryover from 20X2,resulting in a net capital gain of $110,000 included in taxable income.Compute the company's current E&P for 20X3.

Tiger 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: How many shares of stock is Mark deemed to own under the family attribution rules in a stock redemption?

Austin Company reports positive current E&P of $200,000 and negative accumulated E&P of $300,000.Austin distributed $250,000 to its sole shareholder,Betsy Bevo,on December 31,20X3.Betsy' tax basis in her stock is $125,000.How much of the $250,000 distribution is treated as a dividend to Betsy and what is her tax basis in Austin stock after the distribution?

Only taxable income and deductible expenses are included in the computation of current earnings and profits.

Erie Corporation reported taxable income of $2,200,000 in 20X3 before any deduction for any payment to its sole shareholder and employee,LaBron Cleveland.Erie paid a bonus of $200,000 to LaBron at year-end.Erie Corporation is subject to a flat-rate tax of 34%.The bonus meets the requirements to be "reasonable" and is therefore deductible by Erie.LaBron is subject to a marginal tax rate of 35% on the bonus.What is the total federal income tax imposed on the corporate income earned by Erie and paid to LaBron as a bonus?

Terrapin Corporation incurs federal income taxes of $250,000 in 20X3.Terrapin deducts the federal income taxes in computing its current earnings and profits for 20X3.

Which of the following statements best describes current earnings and profits?

Packard Corporation reported taxable income of $1,000,000 in 20X3 and paid federal income taxes of $340,000.Included in the taxable income computation was a dividends received deduction of $5,000,a net capital loss carryover from 20X2 of $10,000 utilized in 20X3,and gain of $50,000 recognized on the collection of cash from an installment sale that took place in 20X1.The corporation's current earnings and profits for 20X3 would be:

Elk Company reports negative current E&P of $200,000 and positive accumulated E&P of $300,000.Elk distributed $200,000 to its sole shareholder,Barney Rubble,on December 31,20X3.Barney's tax basis in his Elk stock is $75,000.What is the tax treatment of the distribution to Barney and what is his tax basis in Elk stock after the distribution?

Which of the following factors would not be considered in determining if compensation paid to a shareholder/employee is reasonable?

Inca Company reports current E&P of negative $100,000 in 20X3 and accumulated E&P at the beginning of the year of $200,000.Inca distributed $300,000 to its sole shareholder on January 1,20X3.How much of the distribution is treated as a dividend in 20X3?

General Inertia Corporation made a pro rata distribution of $50,000 to Tiara,Inc.in partial liquidation of the company on December 31,20X3.Tiara,Inc.owns 500 shares (50%)of General Inertia.The distribution was in exchange for 250 shares of Tiara's stock in the company.After the partial liquidation,Tiara continued to own 50% of the remaining stock in General Inertia.At the time of the distribution,the shares had a fair market value of $200 per share.Tiara's income tax basis in the shares was $100 per share.General Inertia had total E&P of $800,000 at the time of the distribution.What amount of dividend or capital gain does Tiara recognize because of the transaction?

Oakland Corporation reported a net operating loss of $500,000 in 20X3 and elected to carry the loss forward to 20X4.Not included in the computation was a disallowed meals and entertainment expense of $20,000,tax-exempt income of $10,000,and deferred gain on a current year transaction treated as an installment sale of $250,000.The corporation's current earnings and profits for 20X3 would be:

Superior Corporation reported taxable income of $1,000,000 in 20X3.Superior paid a dividend of $100,000 to its sole shareholder,Mary Yooper.Superior Corporation is subject to a flat rate tax of 34%.The dividend meets the requirements to be a "qualified dividend" and Mary is subject to a tax rate of 15% on the dividend.What is the total federal income tax imposed on the corporate income earned by Superior including taxes on the amount distributed to Mary as a dividend?

Abbot Corporation reported a net operating loss of $400,000 in 20X3,which the corporation elected to carryforward to 20X4.Included in the computation of the loss was regular depreciation of $100,000 (E&P depreciation is $40,000),first year expensing under §179 of $50,000,and a dividends received deduction of $10,000.The corporation's current earnings and profits for 20X3 would be:

Stock dividends are always tax-free to the recipient shareholder.

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

The recipient of a taxable stock dividend will have a tax basis in the stock equal to the fair market value of the stock received.