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Exam 19: Corporations: Distributions Not in Complete Liquidation

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Question 61

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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?

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Losses on distributed property are not r...

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Question 62

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

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B) False

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Question 63

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At a time when Blackbird Corporation had E & P of $700,000 and 1,000 shares of stock outstanding, the corporation distributed $300,000 to redeem 400 shares of its stock.The transaction qualified as a disproportionate redemption for the shareholder.Blackbird's E & P is reduced by $280,000 as a result of the distribution.

Which of the following statements regarding constructive dividends is not correct?

For tax purposes, all stock redemptions are treated as dividend distributions.

Keshia owns 200 shares in Parakeet Corporation. Keshia has a 30% beneficiary interest in her deceased grandmother's estate. The estate owns 400 shares in Parakeet Corporation. None of the other beneficiaries of the estate own stock in Parakeet. In applying the § 318 attribution rules:

Puffin Corporation's 2,000 shares outstanding are owned as follows: Paul, 800 shares; Sandra (Paul's sister), 800 shares; and Greta (Paul's granddaughter), 400 shares.During the current year, Puffin (E & P of $1 million) redeemed 600 shares of Paul's stock for $100,000.If Paul had acquired the 600 shares five years ago for $30,000, he will have a long-term capital gain of $70,000 from the redemption.

Explain the requirements for waiving the family attribution rules in the case of complete termination redemptions.

How does the payment of a property dividend affect E & P?

Which of the following statements is incorrect with respect to determining current E & P?

When computing E & P, taxable income is not adjusted for additional first-year depreciation.

During the year, Blue Corporation distributes land to its sole shareholder.If the fair market value of the land is less than its adjusted basis, Blue will recognize a loss on the distribution.

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:

Steve has a capital loss carryover in the current year of $90,000. He owns 3,000 shares of stock in Carmine Corporation, which he purchased six years ago for $50 per share. In the current year, Carmine Corporation (E & P of $750,000) redeems all of his shares for $320,000. Steve is in the 35% tax bracket. What is his tax liability with respect to the corporate distribution if:

In certain circumstances, the amount of dividend income recognized by a shareholder from a property distribution is not reduced by the amount of liability assumed by a shareholder.

Tangelo Corporation has an August 31 year-end.Tangelo had $50,000 in accumulated E & P at the beginning of its 2012 fiscal year (September 1, 2011) and during the year, it incurred a $75,000 operating loss.It also distributed $65,000 to its sole shareholder, Cass, on November 30, 2011.If Cass is a calendar year taxpayer, how should she treat the distribution when she files her 2011 income tax return (assuming the return is filed by April 15, 2012) ?

Purple Corporation has accumulated E & P of $100,000 on January 1, 2012.In 2012, Purple has current E & P of $130,000 (before any distribution) .On December 31, 2012, the corporation distributes $250,000 to its sole shareholder, Cindy (an individual) .Purple Corporation's E & P as of January 1, 2013 is:

Ashley and Andrew, equal shareholders in Parrot Corporation, receive $250,000 each in distributions on December 31 of the current year.During the current year, Parrot sold an appreciated asset for $500,000 (basis of $150,000) . Payment for the sale of the asset will be made as follows: 50% next year and 50% in the following year, with interest payable at a rate of 7.5%.Before considering the effect of the asset sale, Parrot's current year E & P is $400,000 and it has no accumulated E & P. How much of Ashley's distribution will be taxed as a dividend?

If a stock dividend is taxable, the shareholder's basis in the newly received shares is equal to the fair market value of the shares received in the distribution.

A realized gain from an involuntary conversion under § 1033 that is not recognized for income tax purposes has no effect on E & P.