Exam 19: Corporations: Distributions Not in Complete Liquidation

When current E & P is positive and accumulated E & P has a deficit balance,the two accounts are netted for dividend determination purposes.

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 2015. a.Increase b.Decrease c.No effect -Gain on installment sale in 2015 deferred until 2016.

To determine E & P,some (but not all) previously excluded income items are added back to taxable income.

At the beginning of the current year,Paul and John each own 50% of Apple Corporation.In July,Paul sold his stock to Sarah for $110,000.At the beginning of the year,Apple Corporation had accumulated E & P of $200,000 and its current E & P is $250,000 (prior to any distributions).Apple distributed $260,000 on March 1 ($130,000 to Paul and $130,000 to John) and distributed another $260,000 on October 1 ($130,000 to Sarah and $130,000 to John).What are the tax implications of the $130,000 distribution to Sarah?

Kite Corporation,a calendar year taxpayer,has taxable income of $360,000 for 2016.Among its transactions for the year are the following: Collection of proceeds from insurance policy on life of corporate officer (in excess of cash surrender value) $ 9,000 Realized gain (not recognized) on an involuntary conversion 10,000 Nondeductible fines and penalties 21,000 Disregarding any provision for Federal income taxes,determine Kite Corporation's current E & P for 2016.

The Code treats corporate distributions that are a return of a shareholder's investment as sales or exchanges and corporate distributions that are a return from a shareholder's investment as dividends.

adjusted to arrive at current E & P for 2015. a.Increase b.Decrease c.No effect -Dividends received deduction.

Albatross Corporation acquired land for investment purposes in 2001 at a cost of $100,000.Albatross sold the land to Monty on December 30,2015,and did not elect out of the installment method of accounting.The selling price of the property was $400,000.Monty made a cash down payment of $50,000 on the date of sale and executed a $350,000 note,payable in seven annual installments of $50,000 each plus interest at the rate of 6% per annum.The first installment of $50,000 was due in 2016 which Monty paid,plus interest of $21,000.Discuss the effect of this sale on Albatross's taxable income and its E & P account in 2015 and 2016.

Which of the following is not a consequence of the double tax on dividends?

A distribution from a corporation will be taxable to the recipient shareholders only to the extent of the corporation's E & P.

Which one of the following statements about property distributions is false?

Constructive dividends do not need to satisfy the legal requirements for a dividend as set forth by applicable state law.

Rose Corporation (a calendar year taxpayer) has taxable income of $300,000,and its financial records reflect the following for the year. Federal income taxes paid $110,000 Net operating loss carryforward deducted currently 70,000 Gain recognized this year on an installment sale from a prior year 44,000 Depreciation deducted on tax return (ADS depreciation would have been $10,000) 40,000 Interest income on Iowa state bonds 8,000 ​ Rose Corporation's current E & P is:

Lucinda owns 1,100 shares of Blackbird Corporation stock at a time when Blackbird has 2,000 shares of stock outstanding.The remaining shareholders are unrelated to Lucinda.What is the minimum number of shares Blackbird must redeem from Lucinda so that the transaction will qualify as a disproportionate redemption?

Ethel,Hannah,and Samuel,unrelated individuals,own the stock in Broadbill Corporation (E & P of $700,000) as follows: Ethel,300 shares;Hannah,300 shares;and Samuel,400 shares.Broadbill redeems 200 of Samuel's shares (basis of $175,000) for $250,000.If Samuel's stock is a capital asset and has been held for over three years,Samuel has:

In general,how are current and accumulated earnings and profits allocated to corporate distributions?

Gold Corporation has accumulated E & P of $2 million as of January 1 of the current year.During the year,it expects to have earnings from operations of $1,680,000 and to distribute $900,000 in cash to shareholders.Gold Corporation also expects to sell an asset for a loss of $2 million.Thus,it anticipates incurring a deficit of $320,000 for the year.What can Gold do to minimize the amount of dividend income to its shareholders?

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 2015. a.Increase b.Decrease c.No effect -Federal income tax refunds from tax paid in prior years.

Grackle Corporation (E & P of $600,000) distributes cash of $200,000 and land (fair market value of $400,000;basis of $250,000) to a shareholder in a qualifying stock redemption.The land distributed is subject to a mortgage of $460,000.Grackle will recognize a gain of $210,000 as a result of the distribution.

Yolanda owns 60% of the outstanding stock of Amber Corporation.In a qualifying stock redemption,Amber distributes $20,000 to Yolanda in exchange for one-half of her shares (basis of $35,000).As a result of the redemption,Yolanda has a recognized capital loss of $15,000.