Exam 7: Corporate Nonliquidating Distributions

In the current year,Ho Corporation sells land that has a $6,000 basis and a $10,000 FMV to Henry,an unrelated individual.Henry makes a $25,000 down payment this year and will pay Ho $25,000 per year for the next three years,plus interest on the unpaid balance at a rate acceptable to the IRS.Ho's realized gain is $4,000.Since Ho is not in the business of selling land,it will use the installment method of accounting.How does this transaction affect Ho's E&P in the current year and the three subsequent years?

Wills Corporation,which has accumulated a current E&P totaling $65,000,distributes land to its sole shareholder,an individual.The land has an FMV of $75,000 and an adjusted basis of $55,000.The shareholder assumes a $15,000 liability associated with the land.The shareholder will recognize

Joshua owns 100% of Steeler Corporation's stock.Joshua's basis in the stock is $8,000.Steeler Corporation has E&P of $40,000.If Steeler Corporation redeems 60% of Joshua's stock for $50,000,Joshua must report dividend income of

Kiara owns 100% of the shares of Lion Corporation.Kiara's basis is $70,000 and the FMV of the shares is $200,000.Kiara is willing to sell all of the stock to Tia,but Tia is unwilling to pay more than $150,000 for the stock because the Corporation has excess cash balances.They have agreed that Kiara can withdraw $50,000 in cash from Lion before the stock sale.What tax issues should be considered with respect to Kiara and Tia's agreement?

Identify which of the following statements is true.

A shareholder's basis in property distributed as a dividend is its fair market value.

On April 1,Delta Corporation distributes $120,000 in cash to each of its two equal shareholders,Sarah and Matt.At the time of the distribution,Delta's E&P is $160,000.Sarah's basis in her stock is $50,000 and Matt's basis in his stock is $20,000.How are the distributions characterized to Sarah and Matt? Be specific.

In 2010,Tru Corporation deducted $5,000 of bad debts.It received no tax benefit from the deduction because it had an NOL in 2010 that it was unable to carry back or forward.In 2011,Tru recovered $4,000 of the amount due. a)What amount must Tru include in income in 2011? b)What effect does the $4,000 have on E&P in 2011,if any?

Identify which of the following statements is true.

Bart,a 50% owner of Atlas Corporation's common stock,receives a distribution of a new class of Atlas preferred stock having a $40,000 FMV.Bart's basis in the Atlas common stock is $30,000.Its FMV is $80,000 on the distribution date.One year later,the corporation redeems the preferred stock for $75,000.At the time the stock was issued,the corporation's current and accumulated E&P was $80,000.At the end of the year of redemption,the current and accumulated E&P is $25,000.No other distributions out of E&P were made in the year of redemption.What are the tax consequences of the transaction?

Which of the following requirements must be met for a redemption to be treated as substantially disproportionate?

Outline the computation of current E&P,including two examples for each adjustment.

Identify which of the following statements is false.

Identify which of the following statements is true.

Maury Corporation has 200 shares of stock outstanding as follows: How many shares is Amy deemed to own under the Sec.318 attribution rules?

Which of the following statements best describes a bootstrap acquisition?

Hogg Corporation distributes $30,000 to its sole shareholder,Ima.At the time of the distribution,Hogg's E&P is $14,000 and Ima's basis in her stock is $10,000.Ima's gain from this transaction is a

All of Sphere Corporation's single class of stock is owned by four unrelated individuals in the following manner: Zack 27%,Xu 24.33%,Yvonne 24.33%,and Win 24.33%.Some of Zack's stock holdings are redeemed by Sphere Corporation,resulting in Zack's interest being reduced to 22.27%.Xu,Yvonne,and Win owned equally the remaining 77.73% of the Sphere stock.How should the redemption of Zack's stock be treated by Zack?

Rich owns 60 of the 100 outstanding shares of Rainbow Corporation's stock and 80 of the 100 outstanding shares of Oz Corporation's stock.Rich's basis in his Rainbow shares is $12,000,and his basis in his Oz shares is $8,000.Rich sells 30 of his Rainbow shares to Oz Corporation for $50,000.At the end of the year of the sale,Rainbow and Oz Corporations have E&Ps of $25,000 and $40,000,respectively. a)What is the amount and character of Rich's gain or loss? b)What is Rich's basis in his remaining shares of the Rainbow and Oz stock? c)How does the sale affect the E&Ps of Rainbow and Oz Corporations? d)What basis does Oz Corporation take in the Rainbow shares it purchases? e)How would your answer to part (a)change if Rich owns only 50 shares of the 100 outstanding shares of Oz Stock?

Wills Corporation,which has accumulated a current E&P totaling $70,000,distributes land to its sole shareholder,an individual.The land has an FMV of $75,000 and an adjusted basis of $60,000.The shareholder assumes a $15,000 liability associated with the land.The transaction will have the following tax consequences.