Exam 4: Corporate Nonliquidating Distributions

A shareholder's basis in property distributed as a dividend is its fair market value.

Identify which of the following statements is true.

Identify which of the following statements is true.

Identify which of the following statements is true.

Identify which of the following statements is false.

Checkers Corporation has a single class of common stock outstanding.Bert owns 100 shares,which he purchased five years ago for $200,000.In the current year,when the stock is worth $2,500 per share,Checkers Corporation declares a 10% stock dividend payable in common stock.Bert receives ten additional shares on December 10 of the current year.On January 25 of next year he sells all ten shares for $30,000. a)How much income must Bert recognize when he receives the stock dividend? B)How much gain or loss must Bert recognize when he sells the ten shares he received as a stock dividend?

Boris owns 60 of the 100 shares outstanding of Bread Corporation stock and 80 of the 100 shares of Butter Corporation stock.His basis in the Bread shares is $10,000 and his basis in his Butter shares is $5,000.Boris sells 30 of his Bread Corporation shares to Butter Corporation for $25,000.Bread Corporation has E&P of $20,000 and Butter Corporation has E&P of $40,000.In applying the substantially disproportionate test to determine if this is a sale or a dividend,Boris is treated as owning how many shares of Bread after the sale?

In the current year,Red Corporation has $100,000 of current and accumulated E&P.On March 2,Red Corporation distributes to Randy,a shareholder,a parcel of land (a capital asset)having a $60,000 FMV.The land has a $30,000 adjusted basis (for both tax and E&P purposes)to Red Corporation and is subject to an $8,000 mortgage,which Randy assumes.Assume a 34% marginal corporate tax rate. a)What is the amount and character of the income Randy recognizes as a result of the distribution? b)What is Randy's basis for the land? c)What is the amount and character of Red Corporation's gain or loss as a result of the distribution? d)What effect does the distribution have on Red Corporation's E&P?

Elijah owns 20% of Park Corporation's single class of stock.Elijah's basis in the stock is $8,000.Park's E&P is $28,000.If Park redeems all of Elijah's stock for $48,000,Elijah must report dividend income of

Tia receives a $15,000 cash distribution from Main Corporation in March of the current year.Main has $6,000 of accumulated E&P at the beginning of the year and $12,000 of current E&P.Main also distributed $15,000 in cash to Betty,who purchased all 300 shares of Main stock from Tia in June of the current year.What tax issues should be considered with respect to the distributions paid to Tia and Betty?

Identify which of the following statements is false.

Identify which of the following statements is true.

The Sec.318 family attribution rules can be waived for purposes of the Sec.302(b)(3)complete termination rules even though the redeeming shareholder is a creditor of the corporation.

Bat Corporation distributes stock rights with a $20,000 FMV to its common stock shareholders.The $20,000 value of the stock rights at the time of distribution is less than 15% of the value of the underlying stock.Which of the following statements is true?

Wills Corporation,which has accumulated a current E&P totaling $65,000,distributes land to its sole shareholder,an individual.The land has an FMV of $75,000 and an adjusted basis of $55,000.The shareholder assumes a $15,000 liability associated with the land.The shareholder will recognize

Alice owns 56% of Daisy Corporation's stock and 50% of May Corporation's stock.Alice sells one-half of her interest in May Corporation to Daisy Corporation for $30,000.The E&P balances of Daisy and May are $25,000 and $35,000,respectively.Alice's basis in her Daisy stock is $40,000 and her basis in the May stock is $38,000.What are the tax consequences of the transaction?

Payment Corporation has accumulated E&P of $19,000 and current E&P of $28,000.During the year,the corporation makes the following distributions to its sole shareholder: The sole shareholder's basis in her stock is $45,000.What are the tax consequences of the June 1 distribution?

Kiara owns 100% of the shares of Lion Corporation.Kiara's basis is $70,000 and the FMV of the shares is $200,000.Kiara is willing to sell all of the stock to Tia,but Tia is unwilling to pay more than $150,000 for the stock because the Corporation has excess cash balances.They have agreed that Kiara can withdraw $50,000 in cash from Lion before the stock sale.What tax issues should be considered with respect to Kiara and Tia's agreement?

Strong Corporation is owned by a group of 20 shareholders.During the current year,Strong Corporation pays $225,000 in salary and bonuses to Stedman,its president and controlling shareholder.The IRS audits Strong's tax return and determines that reasonable compensation for Stedman would be $125,000.Strong Corporation agrees to the adjustment. a)What effect does the disallowance of part of the deduction for Stedman's salary and bonuses have on Strong Corporation and Stedman? b)What tax savings could have been obtained by Strong Corporation and Stedman if an agreement had been in effect that required Stedman to repay Strong Corporation any amounts determined by the IRS to be unreasonable?

Current E&P does not include