Exam 19: Corporations: Distributions Not in Complete Liquidation

Noncorporate and corporate shareholders typically do not have the same preference for the tax treatment of a stock redemption.Explain why noncorporate taxpayers normally prefer sale or exchange treatment for a stock redemption,and why corporate taxpayers normally prefer dividend treatment for a stock redemption.

Goose Corporation makes a property distribution to its sole shareholder,Michael.The property distributed is a hunting cabin (fair market value of $270,000;basis of $220,000)that is subject to a $350,000 mortgage which Michael assumes.Before considering the consequences of the distribution,Goose's current E & P is $50,000 and its accumulated E & P is 200,000.Goose makes no other distributions during the current year.What is Goose's taxable gain on the distribution of the cabin?

A shareholder's holding period of property acquired in a stock redemption includes that of the distributing corporation.

In applying the stock attribution rules to a stock redemption,stock owned by a 50% or more shareholder of a corporation is deemed to be owned in full by the corporation.

A corporation borrows money to purchase State of Texas bonds.The interest on the loan has an impact on both taxable income and current E & P.

Cardinal Corporation has 1,000 shares of common stock outstanding.John owns 400 of the shares,John's father owns 300 shares,John's daughter owns 200 shares,and Redbird Corporation owns 100 shares.John owns 70% of the stock in Redbird Corporation.How many shares is John deemed to own in Cardinal Corporation under the attribution rules of § 318?

Crow Corporation has 800 shares of stock outstanding.Ted owns 300 shares,Ted's mother owns 100 shares,Ted's sister owns 80 shares,and Ted's granddaughter owns 120 shares.Bluebird Corporation owns the remaining 200 shares of stock in Crow.Ted owns 30% of the stock in Bluebird Corporation.In applying the § 318 stock attribution rules,how many shares does Ted own in Crow Corporation?

In 2007,Floyd carried out a successful complete termination redemption of his stock in Gray Corporation.Floyd was able to qualify the transaction as a complete termination redemption only by use of the family attribution waiver.In 2010,Floyd receives stock in Gray Corporation as a gift from his father.Floyd has acquired a prohibited interest within the 10-year postredemption period and,as a result,the 2007 redemption no longer qualifies as a complete termination redemption.

Gold Corporation,a calendar year cash basis taxpayer,made estimated tax payments of $400 each quarter in 2010,for a total of $1,600.Gold filed its 2010 tax return in 2011 and the return showed a tax liability $2,100.At the time of filing,March 15,2011,Gold paid an additional $500 in Federal income taxes.How does the additional payment of $500 impact Gold's E & P?

Which of the following is not an economic distortion created by the double tax on dividends?

Red Corporation,a calendar year taxpayer,has taxable income of $600,000.Among its transactions for the year are the following: Disregarding any provision for Federal income taxes,Red Corporation's current E & P is:

If a stock dividend is taxable,the shareholder's basis of the newly received shares is determined by reallocating the basis of the previously owned stock.

Grackle Corporation (E & P of $900,000)distributes cash of $100,000 and land (fair market value of $500,000;basis of $410,000)to a shareholder in a qualifying stock redemption.The land distributed is subject to a mortgage of $550,000.Grackle will recognize a gain of $140,000 as a result of the distribution.

A corporate shareholder that receives a constructive dividend cannot apply a dividends received deduction to the distribution.

Lupe and Rodrigo,father and son,each own 50% of the stock outstanding of Heron Corporation (E & P of $400,000).During the current year,Heron redeems all of Lupe's shares for $250,000.The transaction cannot qualify as a complete termination redemption if:

Which one of the following statements is false?

Swan,a calendar year corporation,has a deficit in current E & P of $200,000 and a $580,000 positive balance in accumulated E & P.If Swan determines that a $1 million 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?

Constructive dividends have no effect on a distributing corporation's E & P.

Distributions that are not dividends are a return of capital and cause the shareholder's capital account to increase.

Nondeductible meal and entertainment expenses must be subtracted from taxable income to determine current E & P.