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Exam 19: Corporations: Distributions Not in Complete Liquidation

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Question 21

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

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Corporate distributions reduce E & P by ...

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Question 22

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Puffin Corporation makes a property distribution to its sole shareholder, Bonnie. The property distributed is a car (basis of $30,000; fair market value of $20,000) that is subject to a $6,000 liability which Bonnie assumes.Puffin has no accumulated E & P and $30,000 of current E & P from other sources during the year.What is Puffin's E & P after taking into account the distribution of the car?

A) $4,000.
B) $6,000.
C) $10,000.
D) $14,000.
E) None of the above.

F) B) and D)
G) D) and E)

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Question 23

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Duck Corporation is a calendar year taxpayer formed in 2006.Duck's E & P for each of the past 5 years is listed below. Duck Corporation made the following distributions in the previous 5 years. Duck's accumulated E & P as of January 1, 2012 is:

In the current year, Warbler Corporation (E & P of $250,000) made the following property distributions to its shareholders (all corporations) : Warbler Corporation is not a member of a controlled group.As a result of the distribution:

To determine E & P, some (but not all) previously excluded income items are added back to taxable income.

Dividends paid to shareholders who hold both long and short positions do not qualify for the reduced tax rate available to individuals in certain years.

In the current year, Carnation Corporation has a § 179 expense of $40,000.As a result, in the current year, taxable income must be increased by $32,000 to determine current E & P.

Currently, Brown Corporation (E & P of $800,000) has 1,000 shares of common stock outstanding.Pat owns 200 shares.His wife owns 400 shares, his daughter owns 100 shares, and his father owns 300 shares.Two years ago, Pat transferred $30,000 to Brown Corporation in exchange for 100 newly issued shares of nonvoting preferred stock.In the current year, Brown Corporation redeems Pat's preferred stock for $50,000, its fair market value.With respect to the distribution in redemption of the preferred stock:

Daisy Corporation is the sole shareholder of Ostrich Corporation, which it hopes to sell within the next three years.The Ostrich stock (basis of $25 million) is currently worth $30 million, but Daisy believes that it would be easier to find a buyer if it was worth less.To lower the value of its stock, Ostrich distributes $4 million cash to Daisy (sufficient E & P exists to cover the distribution).At a later date, Daisy sells Ostrich for $26 million.

Vulture Corporation distributes land (basis of $250,000, fair market value of $475,000) to Bonita, a shareholder, to carry out a qualifying stock redemption. The land is distributed subject to a $300,000 liability. Bonita had a basis of $25,000 in the shares redeemed. With respect to the redemption:

On January 1, Gold Corporation (a calendar year taxpayer) has E & P of $30,000 and generates no additional E & P during the year.On March 31, the corporation distributes $40,000 to its sole shareholder, Wyatt (basis in stock of $8,000).Determine the effect of the distribution on Wyatt's taxable income and stock basis.

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.

Renee, the sole shareholder of Indigo Corporation, sold her stock to Chad on July 1 for $180,000.Renee's stock basis at the beginning of the year was $120,000.Indigo made a $60,000 cash distribution to Renee immediately before the sale, while Chad received a $120,000 cash distribution from Indigo on November 1.As of the beginning of the current year, Indigo had $26,000 in accumulated E & P, while current E & P (before distributions) was $90,000.Which of the following statements is correct?

Rust Corporation distributes property to its sole shareholder, Andre.The property has a fair market value of $350,000, an adjusted basis of $205,000, and is subject to a liability of $220,000.Current E & P is $500,000.With respect to the distribution, which of the following statements is correct?

Stacey and Andrew each own one-half of the stock in Parakeet Corporation, a calendar year taxpayer. Cash distributions from Parakeet are: $350,000 to Stacey on April 1 and $150,000 to Andrew on May 1. If Parakeet's current E & P is $60,000, how much is allocated to Andrew's distribution?

Hannah, Greta, and Winston own the stock in Redpoll Corporation (E & P of $900,000) as follows: Hannah, 600 shares; Greta, 400 shares; and Winston, 1,000 shares. Greta is Hannah's daughter, and Winston is Hannah's brother. Redpoll Corporation redeems 400 of Hannah's shares (basis of $55,000) for $240,000. Hannah purchased the stock three years ago as an investment. With respect to the stock redemption, Hannah has:

Platinum Corporation, a calendar year taxpayer, has taxable income of $500,000.Among its transactions for the year are the following: Disregarding any provision for Federal income taxes, Platinum Corporation's current E & P is:

Hazel, Emily, and Frank, unrelated individuals, own all of the stock in Wren Corporation (E & P of $1.2 million) as follows: Hazel, 1,300 shares; Emily, 400 shares; and Frank, 300 shares.Wren redeems 300 of Hazel's shares (basis of $60,000) for $450,000.With respect to the distribution in redemption of the stock:

How does the definition of accumulated E & P differ from the definition of current E & P?

An increase in the LIFO recapture amount must be added to taxable income to determine E & P.