Question 1

Corporate distributions that exceed earnings and profits are always capital gains.

Accepted Answer

A) True 
 B)False

Question 2

What are the consequences of a stock redemption to the distributing corporation?

Accepted Answer

A) The corporation recognizes a gain or loss as if it had sold the distributed property for its FMV immediately before the redemption. 
B) If the redemption is treated as a dividend,E&P is reduced in the same manner as for a regular dividend. 
C) If the redemption is treated as a sale,only accumulated earnings and profits is reduced. 
D) All of the above are correct. 
A) The corporation recognizes a gain or loss as if it had sold the distributed property for its FMV immediately before the redemption. 
B) If the redemption is treated as a dividend,E&P is reduced in the same manner as for a regular dividend. 
C) If the redemption is treated as a sale,only accumulated earnings and profits is reduced. 
D) All of the above are correct.

Question 3

Peach Corporation was formed four years ago.Its current E&P (or E&P deficit)and distributions for the most recent four years are as follows:   What is Peach's accumulated E&P at the beginning of 2006,2007,2008,and 2009?

Accepted Answer

@#IMG-DLM& ^a A distribution does not redu

Question 4

Dixie Corporation distributes $31,000 to its sole shareholder,Sally.At the time of the distribution,Dixie's E&P is $25,000 and Sally's basis in her Dixie stock is $10,000.Sally's basis in her Dixie stock after the distribution is

Accepted Answer

A) $4,000. 
B) $10,000. 
C) $25,000. 
D) $31,000. 
A) $4,000. 
B) $10,000. 
C) $25,000. 
D) $31,000.

Question 5

Identify which of the following statements is true.

Accepted Answer

A) The Sec.318 family attribution rules can be waived for purposes of the Sec.302(b)(3)complete termination rules even though the redeeming shareholder is a creditor of the corporation. 
B) Waiver of the Sec.318 family attribution rules is permitted for all related party stock transactions. 
C) For a redemption to be essentially equivalent to a dividend,the shareholder must not have control of the corporation immediately following the redemption. 
D) All of the above are false. 
A) The Sec.318 family attribution rules can be waived for purposes of the Sec.302(b)(3)complete termination rules even though the redeeming shareholder is a creditor of the corporation. 
B) Waiver of the Sec.318 family attribution rules is permitted for all related party stock transactions. 
C) For a redemption to be essentially equivalent to a dividend,the shareholder must not have control of the corporation immediately following the redemption. 
D) All of the above are false.

Question 6

Corporations recognize gains and losses on the distribution of property to shareholders if the property's fair market value differs from its basis.

Accepted Answer

A) True 
 B)False

Question 7

Exit Corporation has accumulated E&P of $24,000 at the beginning of the current tax year.Current E&P is $20,000.During the year,the corporation makes the following distributions to its sole shareholder who has a $22,000 basis for her stock.   The treatment of the $15,000 August 1 distribution would be

Accepted Answer

A) $15,000 is taxable as a dividend; $5,000 from current E&P and the balance from accumulated E&P. 
B) $15,000 is taxable as a dividend from accumulated E&P. 
C) $4,000 is taxable as a dividend from accumulated E&P,and $11,000 is tax-free as a return of capital. 
D) $5,000 is taxable as a dividend from current E&P,and $10,000 is tax-free as a return of capital. 
A) $15,000 is taxable as a dividend; $5,000 from current E&P and the balance from accumulated E&P. 
B) $15,000 is taxable as a dividend from accumulated E&P. 
C) $4,000 is taxable as a dividend from accumulated E&P,and $11,000 is tax-free as a return of capital. 
D) $5,000 is taxable as a dividend from current E&P,and $10,000 is tax-free as a return of capital.

Question 8

A partial liquidation of a corporation is treated as a dividend in the case of a corporate shareholder.

Accepted Answer

A) True 
 B)False

Question 9

One consequence of a property distribution by a corporation to a shareholder is that

Accepted Answer

A) the amount of the distribution is increased by any liability assumed by the shareholder. 
B) the holding period of the distributed property includes the holding period of the distributing corporation. 
C) the shareholder's basis in the distributed property is the same as the distributing corporation's basis. 
D) any liabilities assumed by the shareholder do not reduce the shareholder's basis. 
A) the amount of the distribution is increased by any liability assumed by the shareholder. 
B) the holding period of the distributed property includes the holding period of the distributing corporation. 
C) the shareholder's basis in the distributed property is the same as the distributing corporation's basis. 
D) any liabilities assumed by the shareholder do not reduce the shareholder's basis.

Question 10

Which of the following transactions does not have the potential of creating a constructive dividend?

Accepted Answer

A) compensation paid by a corporation to a shareholder-employee 
B) purchase of corporate property by the shareholder 
C) shareholder's rental of corporate property 
D) All of the above can result in a constructive dividend. 
A) compensation paid by a corporation to a shareholder-employee 
B) purchase of corporate property by the shareholder 
C) shareholder's rental of corporate property 
D) All of the above can result in a constructive dividend.

Question 11

Current E&P does not include

Accepted Answer

A) tax-exempt interest income. 
B) life insurance proceeds where the corporation is the beneficiary. 
C) federal income tax refunds from prior years. 
D) All of the above are included. 
A) tax-exempt interest income. 
B) life insurance proceeds where the corporation is the beneficiary. 
C) federal income tax refunds from prior years. 
D) All of the above are included.

Question 12

A corporation distributes land and the related liability in a nonliquidating distribution to a shareholder.The land (a capital asset)has an adjusted basis of $70,000,an FMV of $100,000 and is subject to a mortgage of $120,000.The corporation must recognize

Accepted Answer

A) a $20,000 capital loss. 
B) a $50,000 capital gain. 
C) a $70,000 capital gain. 
D) no gain or loss. 
A) a $20,000 capital loss. 
B) a $50,000 capital gain. 
C) a $70,000 capital gain. 
D) no gain or loss.

Question 13

Splash Corporation has $50,000 of taxable income before any charitable contribution deduction.Splash contributed $20,000 to a qualified charitable organization.Due to the 10% of taxable income limitation on charitable contribution deductions,Splash's contribution deduction is limited to $5,000.What effect does the charitable contribution have on current and future E&P?

Accepted Answer

Splash deducts the entire $20,000 in com

Question 14

John,the sole shareholder of Photo Specialty Corporation has had an exceptional year.He is considering issuing himself a large bonus in lieu of a dividend.You are concerned about unreasonable compensation.What issues must be considered?

Accepted Answer

• The employee's qualifications 
• The n

Question 15

Why are stock dividends generally nontaxable? Under what circumstances are stock dividends taxable?

Accepted Answer

Stock dividends generally are nontaxable

Question 16

A stock redemption is always treated as if the shareholder sold his stock to the corporation.

Accepted Answer

A) True 
 B)False

Question 17

Nichol Corporation has 100 shares of common stock outstanding.Nichol repurchased all of Ned's 30 shares for $35,000 cash during the current year.Ned received the shares as a gift from his mother three years ago.They have a basis to him of $16,000.Nichol Corporation has $100,000 in current and accumulated E&P.Ned's mother owns 40 of the remaining shares; unrelated individuals own the other 30 shares.What tax issues should be considered with respect to the corporation's purchase of Ned's shares?

Accepted Answer

• What is Ned's stock ownership before a

Question 18

Good Times Corporation has a $60,000 accumulated E&P balance at the beginning of the year and incurs a $100,000 deficit during the year.Because of its poor operating performance,Good Times pays only three of its usual $10,000 quarterly dividend payments to its sole shareholder: those ordinarily paid March 31,June 30,and September 30.How are the March 31,June 30,and September 30 payments of $10,000 treated?

Accepted Answer

A) dividend; dividend; return of capital 
B) dividend; return of capital; return of capital 
C) return of capital; dividend; dividend 
D) return of capital; return of capital; dividend 
A) dividend; dividend; return of capital 
B) dividend; return of capital; return of capital 
C) return of capital; dividend; dividend 
D) return of capital; return of capital; dividend

Question 19

Dave,Erica,and Faye are all unrelated.Each has owned 100 shares of News Corporation stock for five years and each has a $180,000 basis in those 100 shares.News Corporation's E&P is $720,000.News redeems all 100 of Dave's shares for $300,000,their FMV.
a)What is the amount and character of Dave's recognized gain or loss? What basis do Erica and Faye have in their remaining shares? What effect does the redemption have on News's E&P?
b)Assuming instead that Dave is Erica's son,answer the questions in part (a)again.

Accepted Answer

a)This is a complete termination of inte

Question 20

The gross estate of a decedent contains $2,000,000 cash and 100% of Davis Corporation stock worth $600,000.Funeral and administrative expenses and state death taxes allowable as estate tax deductions amount to $400,000.The estate owes no other liabilities.The decedent's Davis stock can be

Accepted Answer

A) redeemed to the extent of the death taxes and the estate's funeral and administrative costs with sale or exchange treatment. 
B) redeemed with dividend treatment. 
C) redeemed in full with sale or exchange treatment only if the proceeds are used to pay the death taxes and funeral and administrative costs. 
D) redeemed to the extent of the death taxes and the funeral and administrative costs with sale or exchange treatment only if the proceeds are used to pay the death taxes and funeral and administrative costs. 
A) redeemed to the extent of the death taxes and the estate's funeral and administrative costs with sale or exchange treatment. 
B) redeemed with dividend treatment. 
C) redeemed in full with sale or exchange treatment only if the proceeds are used to pay the death taxes and funeral and administrative costs. 
D) redeemed to the extent of the death taxes and the funeral and administrative costs with sale or exchange treatment only if the proceeds are used to pay the death taxes and funeral and administrative costs.

Exam 7: Corporate Nonliquidating Distributions

Corporate distributions that exceed earnings and profits are always capital gains.

What are the consequences of a stock redemption to the distributing corporation?

Peach Corporation was formed four years ago.Its current E&P (or E&P deficit)and distributions for the most recent four years are as follows: What is Peach's accumulated E&P at the beginning of 2006,2007,2008,and 2009?

Dixie Corporation distributes $31,000 to its sole shareholder,Sally.At the time of the distribution,Dixie's E&P is $25,000 and Sally's basis in her Dixie stock is $10,000.Sally's basis in her Dixie stock after the distribution is

Identify which of the following statements is true.

Corporations recognize gains and losses on the distribution of property to shareholders if the property's fair market value differs from its basis.

A partial liquidation of a corporation is treated as a dividend in the case of a corporate shareholder.

One consequence of a property distribution by a corporation to a shareholder is that

Which of the following transactions does not have the potential of creating a constructive dividend?

Current E&P does not include

A corporation distributes land and the related liability in a nonliquidating distribution to a shareholder.The land (a capital asset)has an adjusted basis of $70,000,an FMV of $100,000 and is subject to a mortgage of $120,000.The corporation must recognize

John,the sole shareholder of Photo Specialty Corporation has had an exceptional year.He is considering issuing himself a large bonus in lieu of a dividend.You are concerned about unreasonable compensation.What issues must be considered?

Why are stock dividends generally nontaxable? Under what circumstances are stock dividends taxable?

A stock redemption is always treated as if the shareholder sold his stock to the corporation.

The gross estate of a decedent contains $2,000,000 cash and 100% of Davis Corporation stock worth $600,000.Funeral and administrative expenses and state death taxes allowable as estate tax deductions amount to $400,000.The estate owes no other liabilities.The decedent's Davis stock can be

Tax Research

an Introduction to Taxation

Corporate Formations and Capital Structure

Determination of Tax

The Corporate Income Tax

Gross Income: Inclusions

Gross Income: Exclusions

Other Corporate Tax Levies

Property Transactions: Capital Gains and Losses

Corporate Liquidating Distributions

Deductions and Losses

Corporate Acquisitions and Reorganizations

Itemized Deductions

Consolidated Tax Returns

Losses and Bad Debts

Partnership Formation and Operation

Employee Expenses and Deferred Compensation

Special Partnership Issues

Depreciation,cost Recovery,amortization,and Depletion

Corporations

Accounting Periods and Methods

The Gift Tax

Property Transactions: Nontaxable Exchanges

The Estate Tax

Property Transactions: Section 1231 and Recapture

Income Taxation of Trusts and Estates

Special Tax Computation Methods,tax Credits,and Payment of Tax

Administrative Procedures

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