FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 19: Corporations: Distributions Not in Complete Liquidation

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 1

Multiple Choice

Review LaterAdd Note

Review Later

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?

A) Rust has a gain of $15,000 and Andre has dividend income of $350,000.
B) Rust has a gain of $145,000 and Andre's basis in the distributed property is $130,000.
C) Rust has a gain of $130,000 and Andre's basis in the distributed property is $350,000.
D) Rust has a gain of $145,000 and Andre has dividend income of $130,000.
E) None of the above.

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

Correct Answer

verified

Show Answer

Question 2

Multiple Choice

Review LaterAdd Note

Review Later

Brett owns stock in Oriole Corporation (basis of $100,000) as an investment. Oriole distributes property (fair market value of $375,000; basis of $187,500) to him during the year. Oriole has current E & P of $25,000 (which includes the E & P gain on the property distribution) , accumulated E & P of $100,000, and makes no other distributions during the year. What is Brett's capital gain on the distribution?

A) $0.
B) $100,000.
C) $150,000.
D) $187,500.
E) None of the above.

F) D) and E)
G) C) and D)

Correct Answer

verified

Show Answer

Question 3

True/False

Review LaterAdd Note

Corporate shareholders generally receive less favorable tax treatment from a qualifying stock redemption than from a dividend distribution.

On January 1, Tulip Corporation (a calendar year taxpayer) has accumulated E & P of $300,000. Its current E & P for the year is $90,000 (before considering dividend distributions). During the year, Tulip distributes $600,000 ($300,000 each) to its equal shareholders, Anne and Tom. Anne has a basis in her stock of $65,000, while Tom's basis is $120,000. What is the effect of the distribution by Tulip Corporation on Anne and Tom?

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

Constructive dividends do not need to satisfy the legal requirements for a dividend as set forth by applicable state law.

Briefly describe the reason a corporation might distribute a property dividend to a shareholder in lieu of a cash distribution. Describe the tax effects of the property distribution on the shareholder and on the corporation.

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?

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

The adjusted gross estate of Keith, decedent, is $12 million. Included in the gross estate is stock in Gold Corporation (E & P of $1.3 million) , a closely held corporation, valued at $4.6 million as of the date of Keith's death. Keith had acquired the stock twelve years ago at a cost of $900,000. Death taxes and funeral and administration expenses for Keith's estate are $2.3 million. Gold Corporation redeems one­half of the stock from Keith's estate in a § 303 redemption to pay death taxes using property with a fair market value of $2.3 million (adjusted basis of $1.9 million) . Which of the following is a correct statement regarding the tax consequences of this redemption?

Which of the following is an incorrect statement regarding the application of the § 318 stock attribution rules?

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 not be able to recognize a loss on the distribution.

Tungsten Corporation, a calendar year cash basis taxpayer, made estimated tax payments of $800 each quarter in 2014, for a total of $3,200. Tungsten filed its 2014 tax return in 2015 and the return showed a tax liability $4,200. At the time of filing, March 15, 2015, Tungsten paid an additional $1,000 in Federal income taxes. How does the additional payment of $1,000 impact Tungsten's E & P?

Canary Corporation has 5,000 shares of stock outstanding. It redeems in a qualifying stock redemption 1,200 shares for $475,000 at a time when it has paid-in capital of $300,000 and E & P of $1.5 million. What would be the charge to Canary's E & P as a result of the redemption?

Blue Corporation has a deficit in accumulated E & P of $300,000 and has current E & P of $225,000. On July 1, Blue distributes $250,000 to its sole shareholder, Sam, who has a basis in his stock of $52,500. As a result of the distribution, Sam has:

When current E & P is positive and accumulated E & P has a deficit balance, the two accounts are netted for dividend determination purposes.

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

Grackle Corporation (E & P of $600,000) distributes cash of $200,000 and land (fair market value of $400,000; basis of $250,000) to a shareholder in a qualifying stock redemption. The land distributed is subject to a mortgage of $460,000. Grackle will recognize a gain of $210,000 as a result of the distribution.

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

Tanya is in the 33% tax bracket. She acquired 1,000 shares of stock in Swan Corporation seven years ago for $100 a share. In the current year, Swan Corporation (E & P of $1.2 million) redeems all of her shares for $160,000. What are the income tax consequences to Tanya if: a. The redemption qualifies for sale or exchange treatment, and Tanya has no other transactions in the current year involving capital assets? b. The redemption does not qualify for sale or exchange treatment?