Exam 4: Corporate Nonliquidating Distributions

An individual shareholder owns 3,000 shares of Baxter Corporation common stock with a basis of $10 per share. She receives a nontaxable 5% stock dividend. The basis per share of the common stock after the stock dividend is

How does a shareholder classify a distribution for tax purposes?

Susan owns 150 of the 200 outstanding shares of Parent Corporation's stock. Parent owns 160 of the 200 outstanding shares of Subsidiary Corporation's stock. Susan sells 50 shares of her Parent stock to Subsidiary for $40,000. Susan's basis in her Parent shares is $15,000 ($100 per share). Subsidiary Corporation and Parent Corporation have E&P of $60,000 and $25,000, respectively, at the end of the year in which the redemption occurs. a) What is the amount and character of Susan's gain or loss on the sale? b) What is Susan's basis in her remaining shares of Parent stock? c) How does the sale affect the E&P of Parent and Subsidiary Corporations? d) What basis does Subsidiary Corporation take in the Parent shares it purchases? e) How would your answer to Part (a) change if Susan instead sells 100 of her Parent shares to Subsidiary Corporation for $80,000?

Two corporations are considered to be brother-sister corporations for purposes of the Sec. 304 redemption rules if one shareholder owns more than 50% of each corporation.

Identify which of the following statements is true.

Digger Corporation has $50,000 of current and accumulated E&P. On March 1, Digger distributes land with a $30,000 FMV and a $17,500 adjusted basis to Dave, its sole shareholder. The land is subject to a $5,000 liability which Dave assumes. a) What are the amount and character of the distribution? b) What is Dave's basis in the property? c) When does his holding period for the property begin?

Identify which of the following statements is true.

Poppy Corporation was formed three years ago. Poppy's E&P history is as follows: Year Current E\&P Distributions 2005 \ 6,000 \ 4,000 2006 5,000 1,000 2007 1,000 0 Poppy Corporation's accumulated E&P on January 1 will be

For purposes of determining current E&P, which of the following items cannot be deducted in the year incurred?

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?

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

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

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?