Exam 7: Corporate Nonliquidating Distributions

In the current year,Pearl Corporation has $300,000 of current and accumulated E&P.On June 3,Pearl Corporation distributes a parcel of land (a capital asset)worth $120,000 to Betty,a shareholder.The land has a $60,000 adjusted basis to Pearl Corporation and is subject to a $16,000 mortgage,which Betty assumes.Assume a 34% marginal corporate tax rate. a)What is the amount and character of the income recognized by Betty as a result of the distribution? b)What is Betty's basis for the land? c)What is the amount and character of Pearl's gain or loss as a result of the distribution? d)What effect does the distribution have on Pearl's E&P?

Boris owns 60 of the 100 shares outstanding of Bread Corporation stock and 80 of the 100 shares of Butter Corporation stock.His basis in the Bread shares is $10,000 and his basis in his Butter shares is $5,000.Boris sells 30 of his Bread Corporation shares to Butter Corporation for $25,000.Bread Corporation has E&P of $20,000 and Butter Corporation has E&P of $40,000.In applying the substantially disproportionate test to determine if this is a sale or a dividend,Boris is treated as owning how many shares of Bread after the sale?

Alice owns 56% of Daisy Corporation's stock and 50% of May Corporation's stock.Alice sells one-half of her interest in May Corporation to Daisy Corporation for $30,000.The E&P balances of Daisy and May are $25,000 and $35,000,respectively.Alice's basis in her Daisy stock is $40,000 and her basis in the May stock is $38,000.What are the tax consequences of the transaction?

Identify which of the following statements is true.

Jack Corporation redeems 200 shares of its stock for $100,000 from Junior,who inherited the stock from his father,Ken.The stock's FMV on Ken's date of death was $90,000.Ken's basis in the stock was $40,000.Jack Corporation had an E&P balance of $300,000.If the redemption qualifies under Sec.303,Junior will

Grant Corporation sells land (a noninventory item)with a basis of $57,000 for $100,000.Nichole will be paid on an installment basis in five equal annual payments,starting in the current year.The E&P for the year of sale will be increased as a result of the sale (excluding federal income taxes)by

Tia owns 2,000 shares of Bass Corporation common stock with an $80,000 basis.Bass distributes a nontaxable preferred stock dividend.When the preferred stock is distributed,it has an FMV of $60,000 and the FMV of the 2,000 common stock shares is $180,000.The basis of the preferred stock is

What is a constructive dividend? Under what circumstances are constructive dividends most likely to arise?

Identify which of the following statements is false.

Stone Corporation redeems 1,000 share of its stock from Steve for $100,000.Steve's basis in those shares is $80,000.What tax issues should Steve consider with respect to the transaction?

Boxer Corporation buys equipment in January of the current year with a seven-year class life for $15,000.The corporation expensed the $15,000 under Sec.179.The deduction in the year of purchase for E&P purposes due to the acquisition and expensing of the equipment is

Oreo Corporation has accumulated E&P of $8,000 at the beginning of the current year.During the year (a nonleap year),the corporation incurs a current E&P deficit of $18,250.The corporation distributes $11,000 on March 20th to Morris,its sole shareholder,who has a $9,000 basis for his stock.If the exact loss cannot be determined as of the date of distribution,the treatment of the distribution will be

In a taxable distribution of stock,the recipient shareholder takes a basis equal to the FMV of the stock received.

What is a stock redemption? What are some of the reasons for making a stock redemption? Why are some redemptions treated as sales and others as dividends?

Jerry purchased land from Winter Harbor Corporation,his 100%-owned corporation,for $275,000.The corporation purchased the land three years ago for $300,000.Similar tracts of land located nearby have sold for $400,000 in recent months.What tax issues should be considered with respect to the corporation's sale of the land?

Checkers Corporation has a single class of common stock outstanding.Bert owns 100 shares,which he purchased five years ago for $200,000.In the current year,when the stock is worth $2,500 per share,Checkers Corporation declares a 10% stock dividend payable in common stock.Bert receives ten additional shares on December 10 of the current year.On January 25 of next year he sells all ten shares for $30,000. a)How much income must Bert recognize when he receives the stock dividend? b)How much gain or loss must Bert recognize when he sells the ten shares he received as a stock dividend?

Blast Corporation manufactures purses and make-up kits.The corporation decides to quit manufacturing purses and distributes the assets associated with this division to its shareholders.The distribution of the these assets will be treated as a partial liquidation if

Identify which of the following statements is true.

Identify which of the following statements is true.

Which of the following is not a condition that permits a stock redemption to be treated as a sale?