Exam 4: Corporate Nonliquidating Distributions

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

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

Identify which of the following statements is false.

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

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

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

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

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

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?

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

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.

Bat Corporation distributes stock rights with a $20,000 FMV to its common stock shareholders.The $20,000 value of the stock rights at the time of distribution is less than 15% of the value of the underlying stock.Which of the following statements is true?

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.

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

In a nontaxable distribution of stock rights,when the value of the rights is less than 15% of the value of the stock with respect to which the rights were distributed,the basis of the rights is zero unless the shareholder elects to allocate stock basis to the rights.

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?

Circle Corporation has 1,000 shares of common stock outstanding.Circle redeems 450 shares owned by Dennis for $75,000 in complete redemption of Dennis's interest.The redemption qualifies as a sale.When the redemption is made,Circle Corporation has $150,000 of current and accumulated E&P and paid-in capital of $50,000.The distribution reduces paid-in capital by