Question 1

Identify which of the following statements is true.

Accepted Answer

A)  If both the current and accumulated E&P have deficit balances, a corporate distribution cannot be characterized as a dividend. 
B)  The shareholder's basis in property received in a nonliquidating distribution is the property's FMV reduced by liabilities assumed by the shareholder. 
C)  A corporation recognizes gain when distributing money as a dividend to its shareholders. 
D)  All of the above are false. 
A)  If both the current and accumulated E&P have deficit balances, a corporate distribution cannot be characterized as a dividend. 
B)  The shareholder's basis in property received in a nonliquidating distribution is the property's FMV reduced by liabilities assumed by the shareholder. 
C)  A corporation recognizes gain when distributing money as a dividend to its shareholders. 
D)  All of the above are false. A

Question 2

Identify which of the following statements is true.

Accepted Answer

A)  Loans made to shareholders in proportion to their stock ownership in the corporation is evidence that the loans are disguised dividends. 
B)  Corporate payments for the shareholder's benefit may be a taxable dividend. 
C)  If the shareholder can elect to receive distributing corporation stock or money, the receipt of distributing corporation stock will be a taxable dividend. 
D)  All of the above are true. 
A)  Loans made to shareholders in proportion to their stock ownership in the corporation is evidence that the loans are disguised dividends. 
B)  Corporate payments for the shareholder's benefit may be a taxable dividend. 
C)  If the shareholder can elect to receive distributing corporation stock or money, the receipt of distributing corporation stock will be a taxable dividend. 
D)  All of the above are true. D

Question 3

Gould Corporation distributes land (a capital asset) worth $90,000 to Gerry, a shareholder. The land has a $30,000 basis to Gould. What is the amount and character of the gain or loss recognized by Gould?

Accepted Answer

Gould recognizes a $60,000 ($90,000 - $30,000) capital gain, as though Gould had sold the property.

Question 4

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

Accepted Answer

A)  $6,000 capital gain. 
B)  $14,000 capital gain. 
C)  $20,000 capital gain. 
D)  $30,000 capital gain. 
A)  $6,000 capital gain. 
B)  $14,000 capital gain. 
C)  $20,000 capital gain. 
D)  $30,000 capital gain.

Question 5

White Corporation is a calendar-year taxpayer. Wilhelmina owns all of its stock. Her basis for the stock is $25,000. On March 1 of the current year (not a leap year), White Corporation distributes $60,000 to Wilhelmina. Determine the tax consequences of the cash distribution to Wilhelmina in each of the following independent situations:
a) Current E&P $15,000, accumulated E&P $50,000.
b) Current E&P $25,000, accumulated E&P $(25,000).
c) Current E&P ($36,500), accumulated E&P $65,000.
d) Current E&P ($10,000), accumulated E&P $(25,000.

Accepted Answer

a) $60,000 dividend to Wilhelmina; $15,0

Question 6

Identify which of the following statements is false.

Accepted Answer

A)  For E&P dividend distribution purposes, property as defined in Sec. 317(a) includes money. 
B)  The function of E&P is to provide a measure of a corporation's economic ability to pay dividends. 
C)  At formation, a corporation's E&P depends on the amount of capital contributed by the shareholders. 
D)  Adjustments to taxable income when computing E&P do not include tax-exempt interest. 
A)  For E&P dividend distribution purposes, property as defined in Sec. 317(a) includes money. 
B)  The function of E&P is to provide a measure of a corporation's economic ability to pay dividends. 
C)  At formation, a corporation's E&P depends on the amount of capital contributed by the shareholders. 
D)  Adjustments to taxable income when computing E&P do not include tax-exempt interest.

Question 7

A corporation distributes land and the related liability to Meg, its sole shareholder. The land has an FMV of $60,000 and is subject to a liability of $70,000. The corporation has current and accumulated E&P of $80,000. The corporation's adjusted basis for the property is $70,000. What effect does the transaction have on the corporation?

Accepted Answer

A)  A recognized loss of $10,000; its E&P is reduced by $70,000. 
B)  A recognized loss of $10,000; its E&P is unchanged. 
C)  No recognized gain or loss; its E&P is reduced by $60,000. 
D)  No recognized gain or loss; its E&P is unchanged by the distribution. 
A)  A recognized loss of $10,000; its E&P is reduced by $70,000. 
B)  A recognized loss of $10,000; its E&P is unchanged. 
C)  No recognized gain or loss; its E&P is reduced by $60,000. 
D)  No recognized gain or loss; its E&P is unchanged by the distribution.

Question 8

When computing E & P, Section 179 property must be expensed ratably over a five-year period, starting with the month in which it is expensed for Sec. 179 purposes.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements best describes a bootstrap acquisition?

Accepted Answer

A)  The shareholder sells part of his or her stock to a purchaser and then the corporation redeems the original shareholder's remaining stock. 
B)  The shareholder sells his stock in exchange for cash and debt. 
C)  The shareholder exchanges his stock for stock of a different corporation. 
D)  none of the above 
A)  The shareholder sells part of his or her stock to a purchaser and then the corporation redeems the original shareholder's remaining stock. 
B)  The shareholder sells his stock in exchange for cash and debt. 
C)  The shareholder exchanges his stock for stock of a different corporation. 
D)  none of the above

Question 10

Family Corporation, a corporation controlled by Buddy's family, redeems all of Buddy's stock. For the redemption to be treated as a sale, which one of the following conditions must be met?

Accepted Answer

A)  Buddy cannot be a creditor of the corporation after the redemption. 
B)  Buddy cannot be an officer of the corporation after the redemption. 
C)  Buddy cannot acquire an interest, even by inheritance, for 10 years unless the bequest was made prior to the redemption. 
D)  Buddy must have purchased the redeemed stock from a person whose stock ownership would be attributed to Buddy. 
A)  Buddy cannot be a creditor of the corporation after the redemption. 
B)  Buddy cannot be an officer of the corporation after the redemption. 
C)  Buddy cannot acquire an interest, even by inheritance, for 10 years unless the bequest was made prior to the redemption. 
D)  Buddy must have purchased the redeemed stock from a person whose stock ownership would be attributed to Buddy.

Question 11

Identify which of the following statements is false.

Accepted Answer

A)  The rules for the recognition of a gain or loss by a corporation that distributes property in redemption of its stock are the same as the rules for property distributions that are not in redemption of stock. 
B)  Generally, little or no gain is recognized by the redeeming shareholder in a qualified Sec. 303 redemption. 
C)  When a stock redemption is considered a sale of stock by the shareholder, the E&P of the redeeming corporation is reduced by the FMV of the property used to redeem the stock. 
D)  Under Sec. 311, a corporation does not recognize a loss when it distributes property that has declined in value. 
A)  The rules for the recognition of a gain or loss by a corporation that distributes property in redemption of its stock are the same as the rules for property distributions that are not in redemption of stock. 
B)  Generally, little or no gain is recognized by the redeeming shareholder in a qualified Sec. 303 redemption. 
C)  When a stock redemption is considered a sale of stock by the shareholder, the E&P of the redeeming corporation is reduced by the FMV of the property used to redeem the stock. 
D)  Under Sec. 311, a corporation does not recognize a loss when it distributes property that has declined in value.

Question 12

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?

Accepted Answer

The basis allocated of the common stock

Question 13

Strong Corporation is owned by a group of 20 shareholders. During the current year, Strong Corporation pays $225,000 in salary and bonuses to Stedman, its president and controlling shareholder. The IRS audits Strong's tax return and determines that reasonable compensation for Stedman would be $125,000. Strong Corporation agrees to the adjustment.
a) What effect does the disallowance of part of the deduction for Stedman's salary and bonuses have on Strong Corporation and Stedman?
b) What tax savings could have been obtained by Strong Corporation and Stedman if an agreement had been in effect that required Stedman to repay Strong Corporation any amounts determined by the IRS to be unreasonable?

Accepted Answer

a) The $100,000 in disallowed salary and

Question 14

Identify which of the following statements is false.

Accepted Answer

A)  A stock redemption is treated as a sale or exchange only if the shareholder's ownership of one particular class of stock is terminated. 
B)  An individual is not considered to own stock owned by a brother under the family attribution rules of Sec. 318. 
C)  An individual is considered to own the stock owned by his parents, children, spouse, and grandchildren under the family attribution rules of Sec. 318. 
D)  A person who has an option to purchase stock is considered to own the stock. 
A)  A stock redemption is treated as a sale or exchange only if the shareholder's ownership of one particular class of stock is terminated. 
B)  An individual is not considered to own stock owned by a brother under the family attribution rules of Sec. 318. 
C)  An individual is considered to own the stock owned by his parents, children, spouse, and grandchildren under the family attribution rules of Sec. 318. 
D)  A person who has an option to purchase stock is considered to own the stock.

Question 15

Identify which of the following statements is true.

Accepted Answer

A)  The holding period for property received by a shareholder in a nonliquidating distribution begins on the day after the distribution. 
B)  When making a nonliquidating distribution, a corporation recognizes gains and losses. 
C)  When making a nonliquidating distribution, the corporation's E&P is reduced by the property's FMV even though the property's basis is greater than its FMV. 
D)  All of the above are false. 
A)  The holding period for property received by a shareholder in a nonliquidating distribution begins on the day after the distribution. 
B)  When making a nonliquidating distribution, a corporation recognizes gains and losses. 
C)  When making a nonliquidating distribution, the corporation's E&P is reduced by the property's FMV even though the property's basis is greater than its FMV. 
D)  All of the above are false.

Question 16

Crossroads Corporation distributes $60,000 to its sole shareholder Harley. Crossroads has earnings and profits of $55,000 and Harley's basis in her stock is $20,000. After the distribution, Harley's basis is

Accepted Answer

A)  $5,000. 
B)  $15,000. 
C)  $20,000. 
D)  $60,000. 
A)  $5,000. 
B)  $15,000. 
C)  $20,000. 
D)  $60,000.

Question 17

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 18

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.

Accepted Answer

A)  The corporation will recognize a $15,000 gain; the shareholder will recognize dividend income of $75,000. 
B)  The corporation will recognize no gain; the shareholder will recognize dividend income of $75,000. 
C)  The corporation will recognize a $15,000 gain; the shareholder will recognize dividend income of $60,000. 
D)  The corporation will recognize no gain; the shareholder will recognize dividend income of $60,000. 
A)  The corporation will recognize a $15,000 gain; the shareholder will recognize dividend income of $75,000. 
B)  The corporation will recognize no gain; the shareholder will recognize dividend income of $75,000. 
C)  The corporation will recognize a $15,000 gain; the shareholder will recognize dividend income of $60,000. 
D)  The corporation will recognize no gain; the shareholder will recognize dividend income of $60,000.

Question 19

What must be reported to the IRS by corporations when nondividend distributions are made to its shareholders?

Accepted Answer

The basic purpose of Form 5452, Corporat

Question 20

Tia receives a $15,000 cash distribution from Main Corporation in March of the current year. Main has $6,000 of accumulated E&P at the beginning of the year and $12,000 of current E&P. Main also distributed $15,000 in cash to Betty, who purchased all 300 shares of Main stock from Tia in June of the current year. What tax issues should be considered with respect to the distributions paid to Tia and Betty?

Accepted Answer

• Since the two cash distributions excee

Exam 4: Corporate Nonliquidating Distributions

Identify which of the following statements is true.

Identify which of the following statements is true.

Gould Corporation distributes land (a capital asset) worth $90,000 to Gerry, a shareholder. The land has a $30,000 basis to Gould. What is the amount and character of the gain or loss recognized by Gould?

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

Identify which of the following statements is false.

When computing E & P, Section 179 property must be expensed ratably over a five-year period, starting with the month in which it is expensed for Sec. 179 purposes.

Which of the following statements best describes a bootstrap acquisition?

Family Corporation, a corporation controlled by Buddy's family, redeems all of Buddy's stock. For the redemption to be treated as a sale, which one of the following conditions must be met?

Identify which of the following statements is false.

Identify which of the following statements is false.

Identify which of the following statements is true.

Crossroads Corporation distributes $60,000 to its sole shareholder Harley. Crossroads has earnings and profits of $55,000 and Harley's basis in her stock is $20,000. After the distribution, Harley's basis is

Current E&P does not include

What must be reported to the IRS by corporations when nondividend distributions are made to its shareholders?

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

an Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Itemized Deductions

Losses and Bad Debts

Employee Expenses and Deferred Compensation

Depreciation, Cost Recovery, Amortization, and Depletion

Accounting Periods and Methods

Property Transactions: Nontaxable Exchanges

Property Transactions: Section 1231 and Recapture

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

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