Exam 4: Corporate Nonliquidating Distributions

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

Identify which of the following statements is false.

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?

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

Identify which of the following statements is true.

When appreciated property is distributed in a nonliquidating distribution, the net effect on the distributing corporation's E&P is that it is reduced by the FMV of the property distributed and increased by the gain (net of federal income taxes)recognized due to the property distribution.

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

River Corporation's taxable income is $25,000, after deducting a $5,000 NOL carryover from last year and after claiming a $10,000 dividends-received deduction. What is the current E&P?

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

What are the consequences of a stock redemption to the distributing 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

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

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.

Identify which of the following statements is true.

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

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?

When computing E&P and taxable income, different depreciation methods are often used. What happens when the taxpayer sells such assets?

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?

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

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 each year for last five years?