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Exam 13: Corporations: Earnings Profits and Distributions

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Question 51

True/False

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Distributions that are not dividends are a return of capital and decrease the shareholder's basis.

A) True
B) False

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Question 52

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To determine current E & P,taxable income must be increased for any domestic production activities deduction.

A) True
B) False

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Question 53

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The tax treatment of corporate distributions at the shareholder level does not depend on:

On January 1,Eagle Corporation (a calendar year taxpayer) has accumulated E & P of $300,000.During the year,Eagle incurs a net loss of $420,000 from operations that accrues ratably.On June 30,Eagle distributes $180,000 to Libby,its sole shareholder,who has a basis in her stock of $112,500.How much of the $180,000 is a dividend to Libby?

Ashley,the sole shareholder of Hawk Corporation,has a stock basis of $200,000 at the beginning of the year.On July 1,she sells all of her stock to Matt for $1 million.On January 1,Hawk has accumulated E & P of $90,000 and during the year,current E & P of $160,000.Hawk makes the following cash distributions: $270,000 to Ashley on March 31 and $90,000 to Matt on December 1.How are the distributions taxed to Ashley and Matt? What is Ashley's recognized gain on the sale to Matt?

Finch Corporation distributes property (basis of $225,000,fair market value of $300,000) to a shareholder in a distribution that is a qualifying stock redemption.The property is subject to a liability of $160,000,which the shareholder assumes.The basis of the property to the shareholder is:

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

Tern Corporation,a cash basis taxpayer,has taxable income of $500,000 for the current year.Tern elected $25,000 of § 179 expense.It also had a related party loss of $20,000 and a realized (not recognized) gain from an involuntary conversion of $75,000.It paid Federal income tax of $150,000 and paid a nondeductible fine of $10,000.Tern's current E & P is:

Starling Corporation has accumulated E & P of $60,000 on January 1,2015.In 2015,Starling Corporation had an operating loss of $80,000.It distributed cash of $40,000 to Zoe,its sole shareholder,on December 31,2015.Starling Corporation's balance in its E & P account as of January 1,2016,is:

A corporation borrows money to purchase State of Texas bonds.The interest on the loan has no impact on either taxable income or current E & P.

Pursuant to a complete liquidation,Lilac Corporation distributes the following assets to its unrelated shareholders: land held for three years as an investment (basis of $300,000,fair market value of $600,000) ,inventory (basis of $100,000,fair market value of $80,000) ,and marketable securities held for four years as an investment (basis of $200,000,fair market value of $240,000) .What are the tax consequences to Lilac Corporation as a result of the liquidation?

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

Seven years ago,Eleanor transferred property she had used in her sole proprietorship to Blue Corporation for 2,000 shares of Blue Corporation in a transaction that qualified under § 351.The assets had a tax basis to her of $400,000 and a fair market value of $700,000 on the date of the transfer.In the current year,Blue Corporation (E & P of $1 million) redeems 600 shares from Eleanor for $260,000 in a transaction that does not qualify for sale or exchange treatment.With respect to the redemption,Eleanor will have a:

Briefly define the term "earnings and profits."

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

In the current year,Carnation Corporation has a § 179 expense of $20,000.As a result,in the current year,taxable income must be increased by $16,000 to determine current E & P.

A shareholder's basis in property acquired in a stock redemption is the property's fair market value as of the date of redemption.