Exam 19: Corporations: Distributions Not in Complete Liquidation

Sylvia owns 25% of Cormorant Corporation.Cormorant sells diamonds to retail jewelry businesses.While Cormorant has a deficit in accumulated E & P of $56,000 at the beginning of the year,its current E & P is $500,000.Since the company had a successful year,Cormorant pays a $36,000 distribution to each of the company's four shareholders on December 15.Three shareholders receive cash,but Cormorant distributes a diamond (adjusted basis of $40,000 and a fair market value of $36,000) to Sylvia in lieu of cash.Determine the effect of distributing the diamond on Cormorant's and on Sylvia's taxable income.What is Sylvia's basis in the diamond? Was the distribution good tax planning on the part of Cormorant? Why or why not?

Robin Corporation,a calendar year taxpayer,has a deficit in current E & P of $200,000 and a $580,000 positive balance in accumulated E & P.If Robin determines that a $700,000 distribution to its shareholders is appropriate at some point during the year,what is the maximum amount of the distribution that could potentially be treated as a dividend?

Which of the following is an incorrect statement regarding the application of the § 318 stock attribution rules?

Copper Corporation (E & P of $1.2 million) distributes land (basis of $410,000,fair market value of $650,000) to Lauren,a shareholder,to carry out a qualifying stock redemption.Lauren had a basis of $90,000 in the shares redeemed.Which of the following is an incorrect statement regarding the redemption?

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 -Cash dividends distributed to shareholders in 2015.

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.

For purposes of the waiver of the family attribution rules in a complete termination redemption,the former shareholder must notify the IRS within 30 days of acquiring a prohibited interest in the corporation during the 10-year period following the redemption.

Navy Corporation has E & P of $240,000.It distributes land with a fair market value of $70,000 (adjusted basis of $25,000) to its sole shareholder,Troy.The land is subject to a liability of $55,000 that Troy assumes.Troy has:

Briefly describe the reason a corporation might distribute a property dividend to a shareholder in lieu of a cash distribution.Describe the tax effects of the property distribution on the shareholder and on the corporation.

Vireo Corporation redeemed shares from its sole shareholder pursuant to a written agreement between the parties that clearly identified the transaction as a stock redemption (and not a dividend distribution).Since the agreement is binding under state law,the shareholder will receive sale or exchange treatment with respect to the redemption.

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 -Interest received from municipal bonds in 2015.

Thrush,Inc. ,is a calendar year,accrual basis corporation with Henry as its sole shareholder (basis in his stock is $90,000).On January 1 of the current year,Thrush Corporation has accumulated E & P of $200,000.Before considering the effect of the distribution described below,the corporation's current E & P is $50,000.On November 1,Thrush distributes an office building to Henry.The office building has an adjusted basis of $80,000 (fair market value of $100,000) and is subject to a mortgage of $110,000.Assume that the building has been depreciated using the ADS method for both income tax and E & P purposes.What are the tax consequences of the distribution to Thrush and to Henry? (In your answer,be sure to describe the effects on taxable income for both Thrush and Henry,the impact of the distribution on Thrush's E & P,and Henry's basis in the building. )

As of January 1,Cassowary Corporation has a deficit in accumulated E & P of $100,000.For the tax year,current E & P (accrued ratably) is $240,000 (prior to any distributions).On July 1,Cassowary Corporation distributes $275,000 to its sole shareholder.The amount of the distribution that is a dividend is:

Steve has a capital loss carryover in the current year of $30,000.He owns 3,000 shares of stock in Carmine Corporation,which he purchased six years ago for $20 per share.In the current year,Carmine Corporation (E & P of $750,000) redeems all of his shares for $140,000.Steve is in the 33% tax bracket.What is his income tax liability with respect to the corporate distribution if: a.The redemption qualifies for sale or exchange treatment,and Steve has no other transactions in the current year involving capital assets? b.The redemption does not qualify for sale or exchange treatment?

Provide a brief outline on computing current E & P.

What is a constructive dividend? Provide several examples of the term.

Cedar Corporation is a calendar year taxpayer formed in 2011.Cedar's E & P for each of the past 5 years is listed below. 2015 $28,000 2014 $40,000 2013 $39,000 2012 $68,000 2011 $16,000 ​ Cedar Corporation made the following distributions in the previous 5 years. 2014 Land (basis of $70,000,fair market value of $80,000) 2011 $20,000 cash ​ Cedar's accumulated E & P as of January 1,2016 is:

Certain dividends from foreign corporations can be qualified dividends for purposes of the preferential rate available to individuals.

Maria owns 75% and Christopher owns 25% of Cockatoo Corporation,a calendar year taxpayer.Cockatoo makes a $600,000 distribution to Maria on April 1 and a $200,000 distribution to Christopher on May 1.Cockatoo's current E & P is $120,000 and its accumulated E & P is $500,000.What are the tax implications of the distributions to Maria and Christopher?

The dividends received deduction has no impact on E & P.