Exam 5: Corporations: Earnings Profits and Dividend Distributions

A distribution in excess of E & P is treated as capital gain by shareholders.

Certain dividends from foreign corporations can be qualified dividends for purposes of the 15% rate available to individuals.

Pelican Corporation has E & P of $260,000. It distributes land with a fair market value of $80,000 (adjusted basis of $30,000) to its sole shareholder, Bernard. The land is subject to a liability of $45,000 that Bernard assumes. Bernard has a taxable dividend of:

When a corporation makes an installment sale, for E & P purposes the realized gain is recognized in the year of sale.

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

Cash distributions received from a corporation with a positive balance in accumulated E & P at the beginning of the year will be taxed as dividend income.

Robin Corporation distributes furniture (basis of $40,000; fair market value of $50,000) as a property dividend to its shareholders. The furniture is subject to a liability of $55,000. Robin Corporation recognizes gain of:

Pheasant Corporation ended its first year of operations with taxable income of $225,000. At the time of Pheasant's formation, it incurred $50,000 of organizational expenses. In calculating its taxable income for the year, Pheasant claimed an $8,000 deduction for the organizational expenses. What is Pheasant's current E & P?

Blue Corporation, a cash basis taxpayer, has taxable income of $700,000 for the current year. Blue elected $80,000 of § 179 expense. It also had a related party loss of $30,000 and a realized (not recognized) gain from an involuntary conversion of $85,000. It paid Federal income tax of $185,000 and a nondeductible fine of $20,000. Blue's current E & P is: