Exam 13: Corporate Nonliquidating and Liquidating Distributions

Loon,Inc.reported taxable income of $600,000 in year 1 and paid federal income taxes of $126,000.Not included in the company's computation of taxable income is tax-exempt interest of $30,000,disallowed meals expense 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 year 1.

A liquidating corporation always recognizes loss realized in a complete liquidation where none of the shareholders is a corporation.

Goose Company is owned equally by Val and her sister Eugenia,each of whom own 500 shares in the company.Val wants to reduce her ownership in the company and have the transaction treated as an exchange for tax purposes.Determine the minimum amount of stock that Goose must redeem from Val for her to treat the redemption as being "substantially disproportionate with respect to the shareholder" and receive exchange treatment.

Tar Heel Corporation had current and accumulated E&P of $500,000 at December 31 year 1.On December 31,the company made a distribution of land to its sole shareholder,William Roy.The land's fair market value was $100,000 and its tax and E&P basis to Tar Heel was $25,000.William assumed a mortgage attached to the land of $10,000.The tax consequences of the distribution to William in year 1 would be:

Oriole,Inc.decided to liquidate its wholly owned subsidiary,Tiger Corporation.Tiger had the following tax accounting balance sheet. FMV Tax Basis Appreciation Cash \ 400,000 \ 400,000 Building 100,000 20,000 80,000 Land Total   a.What amount of gain or loss does Tiger recognize in the complete liquidation? b.What amount of gain or loss does Oriole recognize in the complete liquidation? c.What is Oriole's tax basis in the building and land after the complete liquidation?

Katarina transferred her 10 percent interest to Spartan Company as part of a complete liquidation of the company.In the exchange she received land with a fair market value of $200,000.Katarina's basis in the Spartan stock was $100,000.The land had a basis to Spartan Company of $50,000.What amount of gain does Spartan recognize in the exchange and what is Katarina's basis in the land she receives?

Catamount Company had current and accumulated E&P of $500,000 at December 31,year 1.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 year 1 would be:

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?

Red Blossom Corporation transferred its 40 percent interest to Tea Company as part of a complete liquidation of the company.In the exchange Red Blossom received land with a fair market value of $500,000.The corporation's basis in the Tea Company stock was $300,000.The land had a basis to Tea Company of $600,000.What amount of gain does Red Blossom recognize in the exchange and what is its basis in the land it receives?

General Inertia Corporation made a pro rata distribution of $50,000 to Tiara,Inc.in partial liquidation of the company on December 31,year 1.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 as a result of the transaction?

Sara owns 80 percent of the stock of Lea Corporation.Unrelated individuals own the remaining 20 percent.For a stock redemption of Sara's stock to be treated as an exchange under the "substantially disproportionate" test,what percentage of Lea stock must Sara own after the redemption?

Cedar Corporation incurs a net capital loss of $20,000 in year 1 that cannot be deducted on its income tax return but must be carried forward to year 2.Cedar will deduct the net capital loss in the computation of current earnings and profits for year 1.

Packard Corporation reported taxable income of $1,000,000 in year 3 and paid federal income taxes of $210,000.Included in the year 3 taxable income computation was a dividends received deduction of $5,000,a net capital loss carryover from year 2 of $10,000,and gain of $50,000 from an installment sale that took place in year 1.The corporation's current earnings and profits for year 3 would be:

Ozark Corporation reported taxable income of $500,000 from operations for year 1.During the year,the company made a distribution of land to its sole shareholder,Marcus Twain.The land's fair market value was $100,000 and its tax and E&P basis to Ozark was $125,000.Marcus assumed a mortgage attached to the land of $25,000.The company had accumulated E&P of $850,000 at the beginning of the year.Compute Ozark's total taxable income and federal income tax paid as a result of the distribution.Using your solution,compute Ozark's accumulated E&P at January 1,year 2.

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.

Only income and deductions included on a corporation's income tax return are included in the computation of current earnings and profits.

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?

Bruin Company reports current E&P of $200,000 in year 1 and accumulated E&P at the beginning of the year of $100,000.Bruin distributed $400,000 to its sole shareholder on January 1,year 1.How much of the distribution is treated as a dividend in year 1?

Au Sable Corporation reported taxable income of $800,000 in year 2 and paid federal income taxes of $168,000.Not included in the computation was a disallowed penalty of $25,000,and life insurance proceeds of $100,000.Included in the computation of taxable income is a deduction for the bargain element of exercised nonqualified stock options of $50,000.The corporation's current earnings and profits for year 2 would be:

A liquidating corporation always recognizes gain realized in a complete liquidation.