Exam 4: Corporate Nonliquidating Distributions

Rose has a $20,000 basis in the 60% of the Parent Corporation stock that she owns.Parent Corporation owns a 70% interest in Child Corporation.Parent and Child have current and accumulated E&P balances of $25,000 and $40,000,respectively.In return for $15,000,Rose sells 10% of the Parent Corporation stock to Child Corporation.What is the impact of the transaction on Rose?

In a taxable distribution of stock,the recipient shareholder takes a basis equal to the FMV of the stock received.

Corporations may always use retained earnings as a substitute for earnings and profits.

Dave,Erica,and Faye are all unrelated.Each has owned 100 shares of News Corporation stock for five years and each has a $180,000 basis in those 100 shares.News Corporation's E&P is $720,000.News redeems all 100 of Dave's shares for $300,000,their FMV. a)What is the amount and character of Dave's recognized gain or loss? What basis do Erica and Faye have in their remaining shares? What effect does the redemption have on News's E&P? b)Assuming instead that Dave is Erica's son,answer the questions in part (a)again.

Peter owns all 100 shares of Parker Corporation's stock.His basis in the stock is $30,000.Parker Corporation has $300,000 of E&P.Parker Corporation redeems 25 of Peter's shares for $90,000.What are the consequences to Peter and to Parker Corporation?

When computing E&P,Section 179 property must be expensed ratably over a five-year period,starting with the month in which it is expensed for Sec.179 purposes.

Joshua owns 100% of Steeler Corporation's stock.Joshua's basis in the stock is $8,000.Steeler Corporation has E&P of $40,000.If Steeler Corporation redeems 60% of Joshua's stock for $50,000,Joshua must report dividend income of

Perch Corporation has made paint and paint brushes for the past ten years.Perch Corporation is owned equally by Arnold,an individual,and Acorn Corporation.Perch Corporation has $100,000 of accumulated and current E&P.Both Arnold and Acorn Corporation have a basis in their stock of $10,000.Perch Corporation discontinues the paint brush operation and distributes assets worth $10,000 each to Arnold and Acorn Corporation in redemption of 20% of their stock.Due to the distribution,Arnold and Acorn Corporation must report:

Tomika Corporation has current and accumulated earnings and profits of $0.Tomika distributes $10,000 to its sole shareholder,Alana.What are Tomika's earnings and profits after the distribution?

Susan owns 150 of the 200 outstanding shares of Parent Corporation's stock.Parent owns 160 of the 200 outstanding shares of Subsidiary Corporation's stock.Susan sells 50 shares of her Parent stock to Subsidiary for $40,000.Susan's basis in her Parent shares is $15,000 ($100 per share).Subsidiary Corporation and Parent Corporation have E&P of $60,000 and $25,000,respectively,at the end of the year in which the redemption occurs. a)What is the amount and character of Susan's gain or loss on the sale? b)What is Susan's basis in her remaining shares of Parent stock? c)How does the sale affect the E&P of Parent and Subsidiary Corporations? d)What basis does Subsidiary Corporation take in the Parent shares it purchases? e)How would your answer to Part (a)change if Susan instead sells 100 of her Parent shares to Subsidiary Corporation for $80,000?

A corporation distributes land and the related liability in a nonliquidating distribution to a shareholder.The land (a capital asset)has an adjusted basis of $70,000,an FMV of $100,000 and is subject to a mortgage of $120,000.The corporation must recognize

Identify which of the following increases Earnings & Profits.

Dixie Corporation distributes $31,000 to its sole shareholder,Sally.At the time of the distribution,Dixie's E&P is $25,000 and Sally's basis in her Dixie stock is $10,000.Sally's basis in her Dixie stock after the distribution is